By Tom Lauricella
the dollar may finally be enjoying a respite after a poor run of months. However, optimists should not rush to uncork the champagne.
From fall on Wednesday of last week to its lowest point this year against the euro, the dollar has rebounded almost 4%, its biggest gain in a span of six days since November. For now, this upturn, according to brokers, has more to do with a backhand on overly pessimistic bets against fluctuations in currency and commodity markets, that any shift in opinion dominant that the dollar faces significant challenges.
In recent weeks, investors reached unprecedented levels of pessimism about the dollar, which could be seen in the amount of short positions or bets the currency crash. That was especially the case with the euro. As the dollar began to rise last week, many traders were quick to get rid of those bets.
Moreover, brokers say that there was a spiral of feedback between the currencies and commodities, where the huge declines in the prices of silver and oil, agreed to a short-term career buy dollars. These forces have probably already passed its peak.
The link between commodities such as silver and the dollar has strengthened recently, partly because short-term brokers are increasingly participating in both markets, commodities and currencies. For example, individual investors with high levels of leverage are taking bets by "peers" that involve silver or gold on one side of a transaction and the dollar on the other. Many electronic brokers offer the possibility of trading these pairs, which allows an operator to simultaneously bet on a rise in silver prices and a weaker dollar. This kind of operations provide a direct link between movements in the two markets.
In Integral Development, which operates electronic trading networks, the activity in such operations has tripled compared to last three weeks, said Harpal Sandhu, president of Integral. "The volumes recorded a significant increase," he adds.
Some brokers also say that the increase in higher margin requirements on silver may have forced brokers to raise cash by disposing of its short-term bets on the dollar. And because commodity prices are fixed in dollars, a rise in the currency more expensive these materials can for buyers using other currencies.
"The difficulty is knowing how causality works: if the fall in commodity prices caused the rise of the dollar or the rise of the dollar led to falling commodity prices, raises Adam Cole, senior currency strategist RBC Capital Markets.
Some of the purchases of dollars have been driven by renewed concerns in Europe that have affected the euro on sovereign debt crisis in the economic bloc, and the lower expectations that the European Central Bank will raise interest rates after its last meeting.
But the main forces that have driven the big drop the dollar since the beginning of the year intact. Perhaps the most important is that investors think in general it is unlikely that the U.S. Federal Reserve (Fed) to raise interest rates in the short term. That impression was reinforced by a slowdown in the recovery of U.S. economy In addition, there were few signs of progress in relation to the huge U.S. budget deficit
While the euro is below its intraday high this year of U.S. $ 1.4939, reached last Wednesday, is still well above its low of U.S. $ 1.2875 in mid-January and 6.5% against the dollar so far this year. On Thursday night, the euro traded at U.S. $ 1.4239, up from U.S. $ 1.4201 on Wednesday.
"There is little reason to expect it to be a steady escalation of the dollar," said Robert Sinche, global head of FX strategy at RBS Global Banking and Markets.
Source: WSJ
0 comments:
Post a Comment