Being Long USD

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Permalink Reply by Angelo Russo on October 22, 2009 at 12:44pm

Hello Keith,
Enjoyed looking over Forxprofit, a very transparent view on what is being traded, Thankyou.....
I have a question, what fundamental analysis do you have that supports the USD.

This is my opinion only, your title "BEING LONG USD" may be a little misleading.
(a) The USD index is still in a major down trend.
(b) Monthly USDJPY shows since an April 1990 high of 160.300, a down trend line exists.
(c) Retracing back to this line in June 1998 (146.750), Jan 2002 (135.160), June 2007 (124.119).

Possible Scenerio for the USDJPY:
I believe looking at the monthly chart, long term, we are possibly looking at retesting the 1995 low of 79.75 around July 2010.
This will be followed by a retrace to 108.70 around Jan 2014.
Of course this out come is only possible if it follows the chart and if the BOJ does not intervene.

Present strength against the JPY:
1/. Japan basic economic fundamentals are weaker than US.
2/. GBP, AUD, NZD, EUR, CHF, NOK, SEK currencies are currently stronger verses the USD, in line with the dropping USD index.

A better title may have been "Being Long USDJPY".

Regards
Angelo Russo
(I am no expert, I can only apply what I have been taught or learnt through`out my own studies and observations. The above is open to discussion and is not meant to be a trade recommendation.)

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Permalink Reply by keith long on November 2, 2009 at 9:43pm

HI Angelo,

I am always happy to discuss markets with an informed person commited to high standards as you obviously are.

I can agree with your expectation of USDJPY reaching toward 110.00 with the only variation between our perspectives is your judgment that USDJPY will fall toward its all time low of 80.00 reached back in 1995 first.

I expect, though cannot guarantee that the October 5 low of 88.00 for USDJPY will represent a long term low for the currency pair and am long USDJPY from there for the following reasons.

The decline in USD vs JPY has been an anomaly precipitated by the global financial crisis, where the USD of all things has become a haven for safety against risk and the JPY has become a currency that finds value when risk appetite is high globally. Talk about humpty dumpty.

I always saw the decline in USD vs JPY as a phenomenon that would not last and was temporal in its character.

Japan's fundamental baggage as you point out are compelling reasons for USDJPY to move higher.

Apart from that, Japan's interest rate environment is going nowhere. US interest rates will inevitably rise.

The US dollar is a magnet for risk funding and will assume that role again as the global financial crisis unwinds.

Talk about the USD being abandoned by BRIC or other economies is fantasy.

Finally, my perspective about the character or nature of the {MBS} Mortgage Backed Security-induced global financial crisis informs my expectation of USD strength going foward.

The hidden weakness of the MBS environment which was the source of the defaults leading to the global financial crisis will be judged by financial historians in my opinion as a growing pain in the derivative environment of the modern financial world. Derivatives reduce risk, and facilitate expansion of risk capital which translates into economic growth.

Regulation and transparency were behind the curve as MBS instruments expanded apace globally. The absence of responsible regulation permitted the distorted environment which produced the excessive risk from mortgage backed securitization.

Fundamentally, the US and global economy was and is sound. The bankruptcies from MBS associated losses resulting from unexpected risk from those MBS backed securities was a lightning strike for the global financial markets whose source was a narrow point of weakness from the absence of regulation of derivatives specifically MBS.

As the destruction from that lighting strike is cleared away and structures are rebuilt, what is remains is the global financial sructure which remains poised to resume its historic high productivity, low interest rate, high growth rate juggernaut which is integrating China and the third world into the mainstream global financial community.

Bottomline, the financial world remains US centric. That means quite simply, Buy the USD.

Hope to hear more of your opinions on these perspectives.

Keith Long

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Permalink Reply by Crude Oil Trader on October 31, 2009 at 10:11am

Friday's U.S. Dollar closed higher on Friday as it consolidated above the 20 day moving average crossing at 76.06. Looks like your bottom call is on the money! Markets and commodities are getting ready to take the hit....let's cut the cables on the elevator!






http://crudeoiltrader.blogspot.com

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Permalink Reply by keith long on November 4, 2009 at 3:19pm

HI Crude Oil Trader,

If, as I believe the USD begins to strengthen across the index of major global currencies, then it will be expected that the price of oil will fall. That is also true for gold.

The growing strength of USD has implications for all investments especially USD denominated commodities like oil and gold.

I would be a seller of oil and gold today.

Hope to hear your thoughts,
Keith

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