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Faros Trading continues:
Others point to Europe, with many pointing to the unsustainable debt issues being worked through in Portugal, Ireland and Spain topping the shopping list of failing sovereigns. Over the past few weeks the EUR/USD has traded in a 1.2900/1.3400 range, and as the noise surrounding European issues has grown deafening, the price has barely moved while short EUR/USD positions have grown.
Over the past 11 days we have picked up a number of things that have brought us greater conviction on our call for a weaker USD for 2011. Notably the growing consensus among world leaders that the current value of the USD may be the greatest problem of all.
Regarding Europe; over the past few days both China and Japan have stepped up to the European Saviour plate. Last Friday, People's Bank of China's Vice Governor Yi Gang said that Europe is and will remain a key investment market for China's foreign exchange reserves, and investing in euro-zone bonds is beneficial to the security of China's foreign exchange reserves. Today Japan's Finance Minister Yoshikiko Noda said Japan would buy 20% of the new Euro-zone bonds issued to support the Peripheral bailouts currently financed by the International Monetary Fund and the European Union. Noda added "It's appropriate for Japan to make a contribution as a leading nation to increase trust in the deal. We want to buy more than 20%."
Regarding the USD, last week Brazil's Finance Minister Guido Mantega said the Brazilian government is ready to take new measures to prevent the USD from 'melting', later to be joined by Chile's Finance Minister Felipe Larrain who said he wouldn't rule out a USD crisis. Chile just announced they would be buying 12 Bio USD/CLP over the course of 2011, in part to grow their foreign exchange reserves, but also to slow the rate of CLP appreciation. Given his view of the USD we expect these USD purchases will be recycled into the EUR, much as the Asian Central Banks recycle their intervention USD purchases into the EUR and GBP.
This evening we read in Die Welt newspaper that Euro-region governments are looking to adjust the terms of the bailout fund for member countries, with the article saying the fund may extend the amount it can lend, and lower the interest rate Ireland has to pay. In addition, the European Commissioner Ollie Rehn writes in the Financial Times that EU member states can't back-slide, the EU semester will present 'bold policies' and Europe's recovery has taken hold.
The US traditionally looks at USD weakness through three indicators, the USD/Index, the EUR/USD and Gold. The USD/Index is comprised of 57.6% EUR, 13.6% JPY, 11.9% GBP, 9.1% CAD, 4.2% SEK and 3.6% CHF. Based on the USD/Index, the USD seems to be holding its own. On the most part because the countries that the USD/Index measures the USD against are not the ones that are seeing the true USD weakness; mostly due to their own issues. However it is apparent throughout Asia and Latin America that the USD is indeed weak, and its weakness is cause for concern. The EUR/USD, also often pointed to by the Western world, as the measure of USD strength, is actually lower today than it was at the start of 2010, indicating USD strength. Gold though is often overlooked. Many have pointed to the price of Gold and noted that it has risen considerably over the past 5 years. On the flip-side, many would argue that this means that the USD has weakened considerably.
It is our belief that growing global coordination as evidenced by Japan, China and the European Union will lead to a stabilization of the weakness in the EUR/USD, which could then see considerable strength as the USD weakness as seen throughout Asia, Latin America and the commodity markets finally catches up to the Western world, taking some of the pressure off developing countries as the EUR/USD rallies. Perhaps the largest bubble evident in the US is the domestic belief that the USD is strong and the EUR is weak. The rest of the world is starting to voice a very different opinion.
Faros Trading - Weaker US Dollar In 2011
In the following piece obtained exclusively for the King World News blog, Faros Trading is telling its clients to look for a much weaker US dollar in 2011. Here is a portion, “2011 Has begun in earnest, with many looking for the next great bubble to burst. Some point to the growing region of Asia, pointing out the uncontrollable rise in food prices, and the spare capacity in Chinese Housing. We have been in the minority in pointing out that Asian growth comes for a reason. Asia and Latin America are where the jobs are. We would argue that in today's global economy the countries with the greatest growth are the ones with the cheapest ability to produce goods. Asia and Latin America fit that bill nicely.”
January 13, 2011
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