Three interesting dollar shorts

• InEgoVeritas
• November 17th, 2009

We live in a time of Fed-sponsored über dollar liquidity. If you believe like I do that the dollar still has some way to go before finding a floor, you might want to consider shorting it. The problem is that most dollar pairs are at key double top/bottom levels where entering is made riskier by the potential of a sharp nervousness-induced correction that could take you out. I have tried to identified three dollar pairs that are still attractive from both a technical and fundamental point of view. I have selected an exotic, a Nordic and a major pair so that one can choose something to one’s liking. I do not believe these pairs are over-crowded at the moment and I am also actively trading them to take advantage of dollar weakness.

The first pair is the $USDILS. The Bank of Israel hiked rates in August to become the first to begin to normalize monetary policy during the recovery. It held rates steady in Sept and Oct, but speculation is increasing that it will hike rates again based on rising CPI and trade surplus when it meets next week. On the risk side, there is a policy of selling the shekel in the foreign exchange market since March 2008 by the Bank of Israel. I think this policy has become difficult to sustain in view of the rising inflation, interest rates and the relative weakness of the shekel. On the technical side, the pair offers a nice short entry as identified on the following chart:

The Nordic pair I am interested in is the $USDSEK. Those who follow me on twitter know that I have been bullish the Swedish krona for a few weeks now. Sweden historically leads Europe out of recessions. However this year, the Swedish banking sector has had its share of problems with its Latvian exposure. Now that the Latvian parliament has voted its budget and that the IMF and the EU seems satisfied, the krona is starting to come back but it still has some catch up to do. On the risk side, the krona is used as a sort of proxy for Eastern European problems but most problems now seem to be in the rear-view mirror. On the technical side, the pair is also in an interesting area to consider shorting as shown by the following chart.

Last but not least is the $USDCAD. Those who remember my previous post on the loonie remember that I have been bullish the currency for a while. The pair has had a descent pullback and I think is now ready for another leg down fueled by Fed’s liquidity. I would not be surprised to see oil near $100 before the end of the year. In this optic of inflating US assets and commodities, the CAD is well positioned to strengthen.

The risk of the Bank of Canada jawboning the CAD down is always there but I believe these bullets have already been used. There is not much Mark Carney can do now except perhaps to send a letter of insults to Constitution Avenue.

On the technical side, we also have a nice entry upon a minor pullback.

That is it for this week, good luck with your trading.

IEV

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: $USDX, USDCAD, USDILR, USDSEK

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