Currencies

May 25, 2009 – Since March 23, 2001, we have been holding goldgrams as our Core Currency Position.

On May 4th traders sold the US dollar by shorting the Dollar Index at 83.97. Stop out this trade if the Index closes above 82.80.

Since establishing this short position, the dollar has dropped 4.8%, which is a huge move. So some bounce in the dollar may be in order, but maybe not. The fundamentals for the dollar are worsening by the day in the absence of any constraints on spending by the politicians in Washington, D.C.

Here’s a good example of the dollar’s problems. The BBC reported (click here to view report) on May 12th that “Japan’s opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.” It is an interesting development even though the opposition is unlikely to win a majority in this summer’s election in Japan. It shows how far concern about the dollar has gone – that it has become a domestic political issue in a country long considered to be one of the US’s closest allies in Asia. And what’s happening in Japan is also happening in other countries around the world that hold US government debt.