Dollar Likely to Strengthen
21/03/10 12:59
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April 16-18
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The dollar is likely to continue to strenghen as investors remain uncertain over the Eurozone's current policy on Greece, or if any policy exists at all. Greece is a proxy for other 'at risk' Eurozone regions (Spain, Portugal, Italy) as the market fears ECB or IMF may have to inject liquidity to provide a near term solution for the failing countries. Rate spreads between 10yr German Bunds and Treasuries support this view. This scenario is clearly EUR negative. Combine this with rumors of a hike in the discount rate (not the OCR/FED Funds rate) the FED will employ to begin normalization and tightening. The last discount rate announcement was made on Feb 18. In it, the Fed raised the rate and shortened the maximum maturity of loans. In particular, they said "effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight.
The Only Chris Lori Professional Workshop in 2010!!
Charlotte, NC Workshop and Complete Trading Program
April 16-18
Includes:
* Inside The Banks
* Complete FX Course
* 2 Months PTC
* and more...
The dollar is likely to continue to strenghen as investors remain uncertain over the Eurozone's current policy on Greece, or if any policy exists at all. Greece is a proxy for other 'at risk' Eurozone regions (Spain, Portugal, Italy) as the market fears ECB or IMF may have to inject liquidity to provide a near term solution for the failing countries. Rate spreads between 10yr German Bunds and Treasuries support this view. This scenario is clearly EUR negative. Combine this with rumors of a hike in the discount rate (not the OCR/FED Funds rate) the FED will employ to begin normalization and tightening. The last discount rate announcement was made on Feb 18. In it, the Fed raised the rate and shortened the maximum maturity of loans. In particular, they said "effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight.
However, they also emphasized that "modifications [to the discount rate] are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy". In otherwords, the FED realizes this can send an early message to the market about hikes to the FED funds rate, but are attempting to keep the market at bay with crafty verbiage. We feel this provides further support to the USD, is bad for the stock market and could trigger a near term sell off in equities. This combination should lead to early week buying of USD and selling of risk currencies, as well as EUR and GBP. The day of impact may be Thursday when Bernanke speaks, although the market may price it in beginning Sunday open.
We are securing ourselves against pullback in risk and withdrawing our short term AUD and NZD positions. We look for USD strength and weaker equities into the testimony on Thursday. Furthermore, UK Budget on Wednesday may confirm last weeks fears of UK falling back into recession.
This week, look for risk -AUD, NZD, EUR, GBP, CAD to weaken and USD and JPY to strengthen.
Chris Lori Workshop
Charlotte, NC
April 16-18
Chris Lori
CTA