Standing in Line to Short the Dollar

When the US Federal Reserve announced that it was going to start raising interest rates the dollar went on a tear. And when Trump was elected, traders expected the resulting stimulus programs, deregulation and repatriation of corporate cash to drive investment into the USA and drive up the dollar. That is not happening. While the White House is mired in scandals and turmoil of its own making the Trump agenda is coming to naught and the dollar is heading south. Traders are virtually standing line to short the dollar. Bloomberg writes about shorting the dollar.

Being bearish the dollar is the second most crowded trade across markets, according to respondents in Bank of America Merrill Lynch Global Research’s August fund manager survey. The sentiment reflects just how much expectations for the greenback have shifted this year. From December to April, investors said being long the greenback was the single most overcrowded trade. Now, hedge funds and other large speculators are betting the dollar is poised for further declines, amassing the biggest net-short position in more than four years, CFTC data show.

How long is this going to continue? The Financial Times writes that doubts over Trump’s agenda are a big factor in the dollar retreating.

Mr. Trump’s decision to disband his two businesses advisory groups, after a spate of departures following his response to the events in Charlottesville over the weekend, provided the initial trigger for the downturn in the dollar and Treasury yields.

The move, which was announced shortly before the release of the minutes of the Fed’s latest policy meeting, added to simmering worries about the Trump administration’s ability to push through tax reforms and fiscal stimulus measures.

“The goings-on in [Washington] DC overshadowed anything the FOMC minutes could have provided,” said Tom Porcelli, chief US economist at RBC Capital Markets.

So long as Trump is in the White House and engenders dysfunction in the government there will be concerns about the ability of the USA to govern itself and maintain sound fiscal and monetary policies. Despite those who believe that the Russian mess will take Trump out of the White House that is unlikely. The more likely situation will be continued dysfunctional tweets and increasing distance between Trump and congress making the task of governing ever more difficult. Thus standing in line to short the dollar may become an ongoing task.

How Bad Could It Get?

If you believe the dollar could fall into the abyss you are buying bitcoin. But there are problems with that strategy. We recently asked how much will you lose when bitcoin falls.

The problem in predicting the future of bitcoin is that there are precious few fundamentals to follow unless you believe doomsday predictions of the world economic system melting down and all paper currencies becoming worthless.

This is a recurring prediction that is yet to come true unless you live in Venezuela or Zimbabwe. The dollar may continue to slide but eventually even the chaos that is the Trump administration will fail to weaken it further. The trick for Forex traders is when to stop standing in line to short the dollar and start buying. It may be a while.