Friday, July 24, 2015

Follow the dollar - follow the flows


The dollar has been on a strong upward trend. There are good economic reasons for this trend. Growth in the US has been strong. Rates on the longer-end of the yield curve have been higher than other G7 countries. Monetary policy is expected to be tightened relative to other G7 countries. If you don't believe this story, look at the flows. The BNY cumulative flows show strong buying pressure for the dollar. The current strength is unusual.

You can interpret the flows numbers two ways. One, there is more buying than selling for the dollar which will push prices higher. Two, the flows is just a signal or manifestation of what is happening in the economics. The monetary policy events change expectations which lead to changes in dollar flows. The data, however, may be coincident to the price action, but it does confirm the strong positive sentiment for the dollar. Of course, the BNY data is one part of the total flows in foreign exchange. We do not have the total market, but it does provide a useful signal on crowd behavior.

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