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G-20 Blesses Dollar Destruction!
By Mike Conlon | November 9, 2009
Another G-20 meeting. Yawn. The topics of “normal” discussion were nowhere to be found. Nobody criticizing dollar weakness, nobody calling out China for its dollar peg.
So what does this all mean? GAME ON!
News outlets are reporting that the tacit approval and continued commitment to global stimulus will embolden traders to sell US dollars and seek out riskier assets. The US dollar has been re-confirmed as the currency of choice for carry trades, and the Aussie is the main beneficiary of this trade.
Let’s take a look at a chart of AUD/USD on the daily chart (click chart to enlarge)
As we approach year highs in AUD/USD, expect some choppiness as this pair fights to break-out to the upside. As long as traders are convinced that the Fed won’t change its stance, expect to see some turbulence in commodities and commodity currencies.
How fast will the dollar tank and how long will Bernanke let this go is anyone’s guess. But at this point expect to hear some noise out of the Eurozone and Japan, who will not be happy at their own currency’s strength.
I’m still trading cautiously here at the top of the range, as I worry that the lack of concern out of this G-20 meeting may lead to increased chatter from the peanut gallery this week, which in turn could mean increased volatility. And if there’s no jaw-boning from anyone– then I’ll really be concerned!
So my stance is short-dollar but am remaining very cautious.
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