♠ Posted by Emmanuel in Casino Capitalism at 2/21/2010 03:29:00 PMWoes for the US dollar need little recounting from me as the American currency is faced not only with massive debt projections at the national level but also at the state level [1, 2]. As yet, it is unclear to me how states will manage with their deficits and underfunded liabilities. They will probably ask Uncle Sam to fund them, so the headline figures for US budget deficits are, in all likelihood, worse than what the already dismal figures suggest.
I mention this in light of yet another bout of inexplicable dollar strength. Currency speculators seem to have decided that the dollar is a good alternative at the moment since it is not the Euro given Greece's prevailing woes. Once more, I find this strange since Brussels trying to rein in Athens indicates that the EU will, if push comes to shove, enforce discipline on wayward members. The United States, however, has no one doing so at the national or state levels, hence my expectation that the US will perform far less well in terms of budgetary performance going forward.
Meanwhile, Reuters has just provided the most recent International Monetary Market (IMM) data showing existing currency futures bets on widely traded currencies . It further says that dollar long positions are the most since the week of 23 September 2008:
Currency speculators increased bets the U.S. dollar will rise to the highest level since the week of Sept. 23, 2008, according to Commodity Futures Trading Commission data released on Friday.Turning to the technical side, the chart I have for you above is of monthly data for EUR/USD [click for a larger image]. What you will notice is that, shortly after bets increased to their previous highest weekly level, the month of October saw a bottoming out of the most widely traded currency after the dollar, the euro. This movement was then followed by an upswing in the euro that took it past $1.50.
The value of the dollar's net long position rose to $9.69 billion in the week ended Feb. 16, up from $9.41 billion in the prior week. The Reuters calculation for the aggregate U.S. dollar position is derived from the net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc, Canadian and Australian dollars.
Combining the fundamental picture for America (out-of-control national and state finances) with the technical picture (pronounced dollar buying interest) and a reversal may be due soon if CTFC data is taken as a contrarian indicator. We'll see...