Majors by year's end

I foresee USD rising to 122 Yen by year's end, and Euro falling to 1.24 or so. I'd like a colloquy on the reasons why or why not these prices will obtain in the next 3 months or so.

Soliciting the informed views of others.

 

Price action since this thread started last Thursday has jump started my prediction of USD rising versus Yen and Euro. My thought then and now is (1) chance of BOJ rate hike nearly nil, (2) chance of Yuan band widening or other revalue action is lower than may be expected, and (3) chance of a rate hike in US greater than expected and many times greater than chance of a rate reduction. My window for rating these prospects is the next few months. That’s why I gave my prediction in terms of year’s end.

IMF report mid week last week on persistent deflation risk in Japan informs my view. Weekend results out of G7 – or non results more specifically – on Yen and Yuan tend to support it.

Certainly interested in others’ views.

 

I dunno, I keep hearing that long dollar is the minority view right now, but then again the reason I keep hearing this is that the media keeps bringing on "lone dollar bulls" to express their contrarian position. The cot shows excessive euro longs but could be just a massive eur/yen position rather than outright dollar bearishness.

 

Thanks for the reply. I admit limited knowledge of COT reports because I rarely consider them. I know, of course, that they have uncanny hindsight.

The CFTC has recently published a request for comment on the COT reports, which includes these questions, among others:

1. What types of traders in the futures and option markets use the COT reports in their current form, and how are they using the COT data? More specifically:
(a) How do traders use the COT information on commercial positions?
(b) How do they use the COT information on non-commercial
positions?
(c) In particular, with respect to information on non-commercial
positions, what information or insights do traders gain from the COT reports regarding the possible impact of futures trading on the underlying cash market?
2. Are other individuals or entities (academic researchers or
others) using the COT reports and, if so, how?
3. Do the COT reports, in their current form, provide any
particular segment of traders with an unfair advantage?
4. Should the Commission continue to publish the COT reports?

 

Chood, your analysis seems solid enough, why would you want the opinion of others?

 

Because he's a smart investor that realizes others might have a shred of insight that he's either overlooked or missed.

 

Fair question. Ivanovich's comment above (appreciated) correctly explains my reason.

Last year, in the 2d qtr, before the factor gained wide coverage in the financial press, a poster in this forum schooled me (and anyone who bothered to read his posts) about the powerful dollar positive effect of the BOJ's open window/free money policy. That's a very good example of the kind of valuable information available if you prospect for it.

 

Apparently, the dollar's watchwords today are "what doesn't kill me makes me stronger." Looking forward to tomorrow's FOMC statement.

 

I have a slightly different perspective. I am looking for euro to break through or at least test the 1.30 level and for yen to get down into the 113 area for a few reasons. Comparing the two largest components of each of the three regions, I feel the future is bearish for the dollar - these components being 1) interest rate differentials and 2) trade balances.

Starting with the EUR/USD, many say the future rate hikes of the ECB are more or less factored in; however, I say it aint over till the fat lady sings. Thus, because Trichet is going to act on his hawkishness, the euro should gain some ground. On the dollar side, a very interesting situation exists. Many currency traders feel the Fed hasn't gone far enough, whereas, the bond traders feel it has gone too far - hence, the inverted yield curve. Going on the premise the Fed is not going to further invert yield curve, and fight the bond market. The dollar is going to suffer from not only a large trade deficit, but also a shrinking interest rate advantage.

Now with the JPY: interest rates are still quite accomodative, Hank Paulson is going to get China into shape, Thailand is going to cool down, and once again the Fed is done raising rates. Thus, the future yen strengthening may have nothing to do with Japan at all. If Paulson does his job with China, and Thailand settles down, a significant amount of speculative capital could flow into the Yen. Moreover, the US trade deficit is still going to be a huge factor in the equation.

Tying everything together, I believe that other than the state of these economies and the behavior of the central banks, the bond markets are going to be the big X factor. The treasury market has rallied significantly, and the interest rate advantage of the US is only going to get worse from here. Over time, that will sink into the minds of institutional investors globally, and the the excess of foreign capital bloating the bond market and thus the dollar will flow back throughout the rest of the world.

Let me know what you think.

 

rjmain,

You've given a fair and interesting exposition of possible price drivers. Too early for me to say who's correct, although latest US data is inconsistent with my view. Outlook for US Fed and the interest rate differentials between dollar and everybody else could change with next data points. Reality will be data dependent, true too of expectations, which always are the price drivers. Trick is knowing the expectations before the next guy.