DeltaHotel

Seeing Short-Term Strength in the USD

Fascinating article and very interesting theory as to why USD will see continued short-medium term strength.
I could not understand why USD has been appreciating in spite of rapidly deteriorating economic fundamentals (including massive drops in retail sales, home starts and manafacturing whilst the gross national debt increases steadily past the $10 trillion level!)
It seems like vast inflows of foreign capital into US Government Debt instruments such as Treasuries & T-Bills are acting as both a driver for USD strength and a comparative "safe haven" from vulnerable Euroland currencies.
However with a notional outstanding in FX derivs of $56 trillion, and EUR/USD accounting for perhaps 40% of that figure (around $22.4trn), the question remains - To what level will USD reach if those vast short USD positions are fully unwound?
My predictions for 1Q 2009 are:
EUR/USD - 1.20
GBP/USD - 1.50
But with the current volatility it is almost impossible to predict...