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PowerShares DB US Dollar Bullish ETF Message Board

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  • momofwonder momofwonder Dec 19, 2009 7:14 PM Flag

    Dollar made a short term top today - Going back to 50MDA!

    fear of what?

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    • Fear defined by carry trade.

      Let's assume J.P. Morgan sees that the dollar is earning 0% interest, and can be borrowed very cheap. J.P. takes that money, exchanges it for some Australian dollars, which are earning 2.5% (via government bonds), and makes money for just taking the risk. Now assume J.P. sees how "easy" this has been, and is watching his newly purchased money increase verse his loan currency, and levers his whole position up to 8 to 1. Easy 20%, not accounting for the rising AUD.

      Now assume every other Currency Desk from here to Shanghai does the EXACT SAME TRADE. When their newly borrowed currency starts dropping in value against the currency to be paid back, well, profits disappear quickly. So they dump the trade, and everyone else tries to "get out" at the same time.

      Is that the scenario we're looking at now, or just a shakeout? You'll find out by the 141 mark on the EUR/USD. We break through that, and the UUP will find some legs.

      Disclosure: I am short the EURO.

25.43-0.08(-0.31%)Jul 31 4:00 PMEDT