Thursday August 4, 2005 - 11:26:36 GMT
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Black Swan Capital - www.blackswantrading.com
Dollar getting no respect
“There is nothing wrong with cash, it gives you time to think.”
Talk about price-led friends. This is ridiculous. It’s the Rodney Dangerfield dollar—it’s getting no respect.
We know (or think we know) US interest rates are going higher. And we know the US economy is chugging along very nicely. But when the market shifts its gaze, what seemed to matter so much before, no longer does. Where acting players place their bets is the only thing that really matters. And now they are betting against the buck.
We believe what’s happening here is a normal correction. When you consider the dollar run since the beginning of the year—it’s due for a breather. But tucked neatly inside our frontal lobes resides the dictum: You never know the difference between a so-called normal correction and the beginning of a new trend until you receive the gift of hindsight.
Besides the charts and our belief US interest rates and economic growth will eventually where down the pack, probably the most important qualitative indicator around we hang our dollar correction hat is sentiment. We have not yet witnessed a crystallized sentiment extreme in favor of the dollar.
What is a crystallized sentiment extreme? The best definition is by example. If you think back to the tone of the market when the euro in late December ‘04 approached 1.36 against the dollar, you have an example of a crystallized sentiment extreme—in that case in favor of the euro. You will remember that most banking analysts were pencilling in 1.50 as a done deal for 2005. We were told the US deficits were finally about to destroy the world reserve currency as we know it. And on and on into infinitum of everything possible…
No doubt we have seen much dollar bullishness lately. No doubt the pessimism regarding the euro appears overdone. And for now, we are told central banks are piling on and pulling out of the dollar. No doubt this could be the beginning of another long-term decline in the buck. But we still have our doubts.
Black Swan Capital
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