12/07/2006

Should you buy the dollar


The newspapers from across the pond always offer good perspective about US markets. US commentators suffer from too much proximity syndrome. So often they cannot see beyond their noses. Anatole Kaletsky in today's Times has a good piece on why buying dollar here might be a good bet.

Mortgage your house, sell your car, pawn your wife’s jewellery and buy dollars! But don’t do it just yet.

On Friday the pound closed only two cents below the $2 level, which has provided a sure-fire signal for buying dollars and selling sterling for 25 years. The euro, though not quite as strong as the pound, is less than 3 per cent away from the record high that it hit at the end of 2004, a peak that was followed immediately by a 20 per cent plunge — and a corresponding gain for the dollar.

Most telling, newspaper headlines are screaming that the dollar is becoming worthless, while market leaders, central bankers and politicians seem to be in unanimous agreement that there is only one way for the US economy and currency to move from now on, and that that is down.

The cover story of The Economist this week, for example, is titled The Shrinking Dollar. The Financial Times has been publishing leaders or analyses almost daily to explain why the fall of the dollar is inevitable and why it should be welcomed, not resisted, provided that it does not get out of hand.

Such media excitement — and especially magazine cover stories — are usually reliable contrary indicators of a change in trend. Once the whole world believes that a currency will keep on falling, there is nobody left to sell it — and, therefore, the trend is likely to reverse.

3 comments:

walter said...

AKAM breaking out on nice volume

Pradeep Bonde said...

Good catch. If it does not follow through , it might make a good short, if one can find shares.

OBAT said...

Currency trader magazine has a bearish cover story on the dollar.
http://www.currencytradermag.com/