GREENBACK CONSENSUS (Positive/Bear Market Indicator): Up up and away
December 10, 2014
Only just a few years ago, it looked like America’s best days were behind them. Mounting budget deficits, high unemployment, and back breaking oil prices were giving the US a big time beat-down.
It seems from the day the US ‘s credit rating was taken down from the platinum Triple-A rating, Uncle Sam has been slowly getting its groove back. Despite gridlock in Washington, enough traction was gained to reverse the mass spending in place. Unemployment has come down markedly, and thanks to a shale fracking boom in the Midwest, the country all of sudden isn’t as dependent on expensive foreign oil. Even with the Federal Reserve keeping interest rates near zero, that hasn’t reduced the demand for US Treasuries. Put all that together along with increasing malaise around the world and you have the recipe for an invigorated US dollar.
It is now at a seven year high versus the Japanese Yen, two-year high against the Euro and it’s been up more than 12 percent against the Canadian dollar.
The Consensus has taken notice. Hedge fund and other large speculators have boosted their long dollar positions, which are the highest since 2008. The consensus feels that with Quantitative Easing/Money Printing by the Federal Reserve in the past, the stage is set for interest rates to rise which again is good for the US dollar.
- The Soothsayers are lining up with their bullish predictions:
- Goldman Sachs sees the US/Euro going to $1.15 and the US/JPN going up to 130 by year end. It calls it the top trade for 2015.
- Nomura’s Jens Nordvig is targeting US/Euro at $1.12 and US/JPN at 125 by Q4 2015
- Deutsche Bank’s Chief Currency Strategist Alan Ruskin sees “US growth exceptionalism”.
Sadly by the time the Soothsayers pound the table, especially when it comes to currencies, the easy money has been made. There are still large possibilities that the Fed keeps interest rates where they are or Europe and Japan hold back from adding more stimulus, or simply the trade is done. If you want to go a step further, we have seen how even the threat of a rising interest rates has created a fear mentaility in Emerging Market currencies which could spark a global pull-back. These have been heady times for the Greenback. The higher it goes, it opens the doors for other elements that could bring it down to earth pretty fast.