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  • Big Trading Range In The US Dollar. Carry Trades Will Suffer. 0 comments
    Jun 22, 2009 7:51 AM | about stocks: DBV, FXE

    I am getting more and more interested in the currency markets. The US Dollar is forming a big trading range since November when it traded at 1.25 against the Euro currency. A month later, in December after the FED meeting where the Quantitative Easing was first mentioned the dollar crashed in a few days and traded at 1.44 against the Euro.

    We`ve been stuck in this trading range range since then, despite the huge volatility in the forex markets. In the Bloomberg`s strategist survey there is a 39 cent gap between the high and the low call for the EUR/USD cross. They range from 1.16 and 1.55 by year`s end.

    Barclays President said recently that "currency volatility is running at more then double the norm".This volatility is not good for carry trades and as Deutsche Bank`s Werner Eppacher wrote, "You`d earn your carry, you`d earn your price appreciation, and all this yield you`d had over two years disappears in an extremely short time of 48 to 72 hours".

    So it seems clear that carry trades will perform poorly but I am not sure about the resolution of this big trading range in the EUR/USD. I am bullish on the dollar short term, but the much more conservative ways of the ECB will probably dictate higher Euro and lower US Dollar in the future.

    Disclosure: No Positions

    Stocks: DBV, FXE
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