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Will the dollar strengthens once more

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rosstaylor posted on Tue, Oct 5 2010 4:42 AM

in 2008, despite the pessimism, the dollar rise while the other currencies fall. 

Does anyone think that can happen again? 

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It can happen again, of course, but I doubt it will.

 

Last time, the dollar rise during the crisis was the contrarian play. Very few expected it. Most were positioned short the dollar and were forced to cover the shorts once the dollar started rallying, fueling the rise.

This time most expect the dollar to rise if there is a crisis again, and are positioned as such. Therefore, contrarian theory calls for the dollar to plummet.

A big part of the reason I expect it is because the last crisis passed and people realized the rest of the world survived just fine the crisis - and there was - in hindsight - no real reason to have dollars as protection. Plus, the United States debt and deficit situation will be in even worse shape if there is another panic - not to mention the panic might very well start due to the dollar.

 

  

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Yes, I think in the short term the dollar could rise due to deflationary presures because of the double dip. But it all depends on Bernanke and when he announces QE2. Once Bernanke announces QE2 deflation and dollar strenght is over.

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Probably it will against the euro. The US is not making a comeback, but other countries might be in even deeper trouble. The EU is certainly one of these.

 But if by ‘comeback’ you means as against gold, I highly doubt it.

The Regression theorem is a memetic equivalent of the Theory of Evolution. To say that the former precludes the free emergence of fiat currencies makes no more sense that to hold that the latter precludes the natural emergence of multicellular organisms.
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Can you please be more specific? What do you mean by the QE2? I actually happen to believe that the dollar will strengthen again once more, because this is actually the Contrarian play - no many people that I've seen in the news are optimistic about the US dollar right now. 

By "come back" I mean against all commodities like in 2008 - if you could, perhaps you can tell me more of the possible scenarios that might occur in the near future. 

Is it just me or all commodities have been rising furiously in the past few weeks? Seems like it's going up way too fast and too high. 

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In 2008, the dollar rose because people thought it was a safe place to park your money in uncertain times.

This time around, with the Fed's recent announcing to the whole wide world that they plan to inflate without letup, people are saying "Then who needs dollars?"

So it's time for this

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QE2 means "Quantitative Easing part 2", a possible repeat of the unprecedented liquidity creation by the Federal Reserve at the end of 2008.

On a related note the Monday 4 October 2010 of the very Left leaning Italian economic weekly La Repubblica-Affari e Finanza run a very interesting story in first page "Where's the US Recovery?". In short it was a garbled mish mash of what Ron Paul, Marc Faber and others have been saying for years: the stimulus hasn't done one tiny bit of good and all that liquidity is producing enormous volatility in a moment when we cannot afford volatility. Curious behavior from a source which has been licking Bernanke's boots for almost two years claiming he was the man who "jump started the world economy". The poor guy is losing friends faster than he can print money.

At the end of 2008, when the Big Inflationary Push took place the Federal reserve coordinated efforts with its partners in crime, the European Central Bank (ECB), the Bank of England (BoE) and the Bank of Japan (BoJ) to "inject liquidity on the markets" while preserving a sort of balance. Problem is the US dollar is sinking faster than anyone expected, both under the weight of all that liquidity which will sooner or later break the dam and under impression that the Obama administration is more interested in "preserving social peace" and bombing Muslims than in anything else. Big exporters, like Japan and Germany, are visibly uneasy at the drop in value of the US dollar. They must find a precarious balance between an exchange rate that will please their industry and low price inflation to keep voters from protesting too much. Should the US go for another round of inflationary politics (be it through more money printing or forcing the banks to lend all that liquidity), they will be in a very tight spot. Inflate to keep exporters happy and chances are voters will finally awake, be reasonable to keep voters happy and exporters will be unhappy.

Together we go unsung... together we go down with our people
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Kakugo, 

Excellent answer! (So excellent that I added you as a friend)

Anyhow, do you foresee that the dollar will once again strengthens against all odds in the near future? (This question is for Kakugo)

I have some money in commodities and I fear that a black swan will again arrive before the year ends, I'm thinking about liquidate my assets into the US dollar. Currently trying to get a consensus of what people think.

People say that you should try to be a contrarian. Well, as of now, there isn't that many people who are optimistic about the US dollar, which leads me to think that it will have a huge rally in the near future. Judging from the increase in virtually all commodities prices from a short period of time, I think the dollar will have a rebound fairly soon, but again, I might be wrong, and that's where all of you comes in :) 

 

Would you risk it, Kakuro?

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I trade currencies for a living, and the only thing you need to know is that currently the FED is carrying out POMO (permanent open market operations) which in essence means buying bonds, which in essence means increasing the money supply. Furthermore there are signs from Bernanke et al that they intend to unleash a large round of asset purchases, possibly to be announced on Nov 3rd. Therefore equities, precious metals, commodity currencies etc are being bought with the new money washing through the system 2) Expectations of future inflation are being priced in.

I'm not psychic but I imagine there will be a 'short squeeze' sometime fairly soon in which the dollar gains some strength, but the long term trend is certainly for a weaker dollar. Personally if I owned any Gold right now I would keep hold it. Nothing here is a trade recommendation, just my own views.

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Another great answer! I must add you, too! I love it when people back up their claims with evidence!

One more vote on the no-short-term-trading side. I like it.

How did you get into the trading currencies business? Whom do you work for? What currencies do you deem safe? (or should say safer than the others since all currencies have no fundamental values these days). I have set up an account with Forex before but I didn't like how they required minimum balances. Plus, they call me like crazy. 

P.S Do you have an opening at your branch? HIRE ME (ahahahah!). 

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Rise against other currencies: Certainly:

Face it, the countries world including the supposed lenders of last resort: The BRIC countries,  are creating currencies in this Mercantilist frenzy to sell as much to the USA as possible and beat out the other countries before the dollar is worthless.  So the USA and these countries are in a race to the bottom but are limited in their abilities to make currency devaluations because of a variety of factors, inflation rates, mass unemployment in consumer goods industries, etc.  So the relative currency values between the dollar and other ones is sure to vary.

Rise against gold: Certainly.

If the USA central bank even slows the money and credit creation then world wide investors will begin to move out of gold at its historic high and move back to dollars.

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DD5 replied on Wed, Oct 6 2010 9:26 AM

Strengthen relative to what?

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Other currencies and possibly commodities. Your opinion?

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JohnnyFive:
I trade currencies for a living,

JohnnyFive,

Please contribute to these forums whenever you can.  Your insights are greatly appreciated!

I am trying to ride the Bernanke Put the best I can.  I believe stocks, bonds, gold and commodities will continue to rise.  I believe the Fed will never stop the printing. 

If banks do begin lending again (banking multiplier kicks in), and CPI inflation makes B.S. Bernanke nervous, the Fed will increase the interest rate it is currently paying on excess reserves in the banking system.  Thus, lending (and money creation) will be slowed down that way without having to sell treasuries.  I can't imagine the Fed will ever sell treasuries again.  The baby boomers are retiring and rely on U.S. deficit spending for survival.

I am very bullish on bank stocks right now.  The banks can't lose.  They have a backstop against loss, a central bank that flooded the system with excess reserves, and they will be paid NOT to lend if things get dicey.  Nice work if you can get it. 

"The market is a process." - Ludwig von Mises, as related by Israel Kirzner.   "Capital formation is a beautiful thing" - Chloe732.

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rosstaylor,

You might find this chart to be insightful.  It comes from a website called Decisionpoint.  The dollar could be declining to about 76, where support might come in.  A dollar rally from there?  Who knows.

Decision Point

"The market is a process." - Ludwig von Mises, as related by Israel Kirzner.   "Capital formation is a beautiful thing" - Chloe732.

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