US Dollar Continues Weakening Trend

Dubai made headlines last week with news that it would delay payments on its national debt. This announcement caused a global equity sell-off. However, the United Arab Emirates' central bank soon intervened saying it would guarantee Dubai's debt. Global concern over Dubai's debt and the general risk of other nations delaying/defaulting on their debt has since subsided.

The U.S. dollar continued it weakening trend as the EUR/USD made its way to the 1.5000/5060 level; it has since retreated to below 1.5000. The 1.5000 level is proving to be the main resistance point for the time being. It has been reported that several hedge funds that have exceeded performance this year have closed down for the remainder of the year.

As expected during the shortened Thanksgiving trading week, the major trends have remained intact. Global investors continue to sell/borrow cheap U.S. dollars to fund the purchase of equities and other investments. It appears that the U.S. dollar has replaced the Japanese yen as the major funding currency for the global carry trade. Although we may technically be out of the recession, global fundamentals still appear weak. Until the U.S. Fed and other central banks signal higher interest rates, it seems that global investors will continue to turn to equities and commodities for higher yields.

We continue to suggest to our clients who need to buy foreign/sell U.S. dollars to consider doing so on any dips; while we advise those who need to sell foreign/buy U.S. dollars to consider (at least) partially locking in rates at these lofty levels.

Steve Kim, MBA, JD
Foreign Exchange Advisors LLC
www.thefxadvisors.com / steven.kim@thefxadvisors.com
For informational purposes only – consult your professional financial advisor before making any investment decision.