Monday, November 12, 2012

Should the dollar direction be higher?

So let's figure this out. QE3 happened in the middle of September and the dollar has been moving higher since then. We have moved form 79 to 81 on the DXY dollar index. A currency should be moving lower on monetary action. The economy has gotten stronger. This should reduce the need for holding funds in the safe haven. Earnings and corporate sales are weaker which may cause risk-off trading. The fiscal cliff is a US event yet the dollar is higher even with post-election gridlock. Does this all make sense?

The prrblem is that the key drivers of the dollar are not currently well-defined. This means that it is hard to trade currencies and the result has been a reduction in currency activity. If you cannot determine the drivers, you will exit the market. Increase factor uncertainty and trading will decline.

Should the dollar go higher? This is a more difficult question when the driver of the dollar are not well-defined.

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