Short-Term Dollar Rally
Posted on Friday, July 27th, 2007 | In Market CommentaryThere appears to be two of these moving through the world right now. One is in the Tour De France (nice call Linda P, you were exactly right) where the Tour has been destroyed to the point that I seriously wonder whether they might scrap it next year. Too bad there is no way to buy puts on the Versus channel.
A less dramatic storm might be in the currency market. Up until Wednesday the dollar was a one way trade down.
On Tuesday (I think it was Tuesday) the Daily Pfenning newsletter in and amongst all the exclamation points mentioned how strong all the currencies look against the dollar. While this is probably true it is worth remembering that nothing is a one way trade.
It looks like the dollar was very strong overnight against everything I watch except for ISK.
If you do a lot of foreign investing you have benefited from the weak dollar. You are also vulnerable to a dollar rally. At some point the dollar will have to snap back some. This has happened a few times during the last few years and will happen again–at least this is how markets usually work.
I do not think the longer term trend for dollar weakness has changed, I am not going to try to trade around any sort of dollar rally, should one come, but if the dollar does rally and you own a lot of foreign you will lag for a while.
The visibility for this is easy to see. Not easy from the standpoint of trading it because who knows about the timing but one way trades reverse. We have seen this several times with crude oil in both directions and of course stocks. It is the type of pattern that repeats over and over in all markets.
If the dollar rallies I will lag.
Knowing what you are vulnerable to, as I have written about before, is very empowering. It is logical and true thus there is no need to react to something that is logical and true with emotion.
Last 5 posts by Roger Nusbaum
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 About Roger Nusbaum (http://randomroger.blogspot.com)
Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog, which has been profiled in several top business publications, including Barron's and Forbes. Nusbaum has also been a financial consultant with Morgan Stanley, an investment counselor with Fisher Investments and an institutional equities and options trader with Charles Schwab. He holds a bachelor's degree in economics from San Diego State University |
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