What's your opinion on USD? Recession?

As we have all seen the past two weeks all the bad US data finally caught up and killed it versus other pairs. Against the GBP is almost 2.00 and the EUR over 1.33, every piece of inflation data release over the last two months has been suggesting that inflation was under control. The housing numbers have been some of the lowest ever or lowest in years, even with the lower fuel prices personal spending is not as strong as expected and factories are now starting to show a slowdown. Due to these and other issues the likelihood of a interest rate cut early next year has increased which has also allowed carry traders that were USD long start to close out their positions. This week we have NFP which could give a surprise and temporarily help out the USD.

Based on your research or just your opinion what do you think the outlook for the USD is over the next 3-6 months? Do you see anything happening that will change the negative USD sentiment change?

The higher it climbs the harder it falls. There will be a USD comeback at some stage.

Forecast : 0-6 months -> 1.34.

caution : not a prediction.

I see the euro achieving a new swing high above 1.3667 before returning down lower than 1.16.

Technically the upmove cleared all important resistance, and most likely its going to score a new high.

But giving a combination of a soft landing in the US, a continued concern about euro rising towards 1.40USD, very hard environment for Sterling to rise and stay above 2USD level (King will comment) and a fully priced in rate cuts in near term from Federal Reserve, I think that at some stage, traders will find no reason to sell dollar as everything would be priced in already. And that would be the dollar come back.

This trend will end when traders say there is no reason to sell more dollars.

Just the case when the USD was hitting 120 yen, nearly.
Only my thought

There very well may be a USD comeback, if for no other reason than the fall was too fast. The comeback may repreent no more than a temporary retracement.

My thoughts are that the US has acquired a huge amount of non-economic adverse sentiment, much of it having to do with its involvement in Iraq, but also possibly relfecting sentiment about US interference worldwide.

Beyond this there is the problem alluded to in another thread of the lack of productivity of the US, which lends little support to the value of the currency as well as the huge debt. As productivity decreases and the debt increases, logically the value of the currency will decrease, although not as precipitously as has occurred recently.

I agree with you moonchild. I easily imagine that there will be a retracement but I think that the very long term trend is still short dollar because I don't see any reason that it can be long.

I thnk that because of the huge debts the future of USD is not so much in the hands of USA but also a lot in the hands of the other countries that finance the US debt like China. Maybe if countries like China are tired to see the USD going down they will exchange it against Euros... And in that case the drop will be much much worst.

The euro central bank will raise interests rates by -0.25% then predicted only if dolar would be 1.43 against the euro, but there should be some corection. Who knows?

its 830 am gmt and the dollar has risen to 1.9730 as i type

The EUR/USD is definitely due for a pullback. I think it's gotta head back up to test the all time highs eventually.

My personal perspective is that the US dollar is going to be weak for a quite while now due to high inflation and low growth. now i am no econimist but that is my reading of the playing field.

Enjoy
Ademac

Here's a different, but interesting nonetheless, view of current dollar decline http://www.dismally.com/2006/12/what...r_decline.html

Let's look at the recent events:

-All inflation indicators are low so the Fed can't use this as a concern to keep increasing rates.
- Personal spending has been lower than expected even with the lower gasd prices. This was another part of what the Fed was using to keep increasing rates.
-The housing market is declining with some of the monitored numbers hitting al time lows or at least some of the lowest in the last 5-10 years. Personal spending was tied to a certain degree to the housing boom since consumers were spending based on the equity of their homes.
-For the first time since 2003 the manufacturing index went under 50 which shows no expansion in the manufacturing sector, again bad for the USD.
-The carry traders have been keeping the USD high even when there was bad data due to the 5.25% interest rate. There are articles that USD long carru trades are decreasing quickly since there is many factors to support rate cuts in the near future.
-Several central banks have comeout and said that they are diversifying their currency portfolio, mostly going away from the USD and going toards the EUR. Again more USD in circulation the less the value of the currency.

With so many factors going on at the same time that are negative for the USD what kind of fundamental annoucement help turn the tide because right now I don't see anything that could happen to change the trend in the short term. I can see some correction, maybe some good NFP numbers or a better than expected Christmas retail season but besides that I can't see what will turn the tide.

Back in 2004 I think, most everybody was saying that the dollar was headed down and would crash. It didn't. Shortly after everybody (including Time magazine) decided that, the dollar went up for a huge rally. I think the same thing will be true this time too. Sooner or later we run out of sellers. I'm not even sure it has anything to do with fundamentals. Fundamentals didn't change that much last time it ran up.

My crystal ball never DID work very well....however it seems reversals occur right around the time of the highest or lowest sentiment...whichever the case may be.

tom

If I were the biggest <st1:country-region w:st="on">US</st1:country-region> debt holder (I believe <st1lace w:st="on"><st1:country-region w:st="on">China</st1:country-region></st1lace> is) I would not want $ to become worthless… not at all

If China were smart they would not buy those expensive euros now. They would be wiser to buy cheap dollars.

Buy low, sell high.

tom

Very good point.

I don't think anyone is trying to read the "crystal ball" just to state opinions based on current data. I agree that there are some similarities to 2004 but we have to remember that in FOREX like any other market you have to take every situation on its own not use past history because it does not repeat itself 100% of the time. Same thing was heppening about a month ago when the EUR/JPY hit 150 and it was an all time high everyone was saying it would go down and as we now know we have hit over 154. I'm sure the USD will retrace to a certain degree but there has to be certain supporting factors for investors to get in long term, whether it is fundamentals, carry trade value or big banks buying the foreign currency. Right now there is nothing to support any of these especially if talk comes out of rate decreases. Personally I think the Fed went too far with teh 17 consecutive increases and think this will hurt our ec onomy next year. Gas will eventually go back up and with rates staying high consumer spending on big items will continue to decrease I believe. I want to know if someone can give some type of supporting factor for the US economy to turn around in the next 3-6 months, especially if we get deeper into war or another war against Iran for example.