Should You Be Selling The US Dollar?

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We asked our new currency strategist Gabriel Andre what to make of all this. We're expanding our editorial team at the Old Hat Factory. Al "Smokey" Robinson is on the resource beat. And frankly, we're tired of quoting institutional economists. Free thinkers without an agenda are much better. So we've hired a Frenchman who moved to Melbourne last year but has traded forex for the last few years in Europe and Australia.

--Gabriel says, "The Fed Reserve cut interest rates by only 25 basis points, that's why the EURUSD fell and the Yen climbed against the other major currencies. Indeed, a cut by 50 basis points was already priced and expected by many traders and investors. It would have been a strong signal to sell the USD, as the main driver of the FX rates is the interest rate differential between the different economic areas. "

--The strongest reason to sell the dollar is that America's central bank has already told investors it will do anything to prevent a housing-led recession, even if it means more weakness for the dollar overseas. But there are other, more technical reasons too.

--Gabriel says that, "The big players in the market, especially the trend followers hedge funds, which have been short USD for a long time and which already made a lot of money this year, want to test the psychological resistance zone around 1.50 (EURUSD) again before the end of the year...also...the liquidity will decrease in the next few weeks, and the market makers could also try to clear the numerous stop-loss just above 1.50."

--The dollar got a bit of reprieve because the Fed cut was smaller than expected. But look for the dollar to test its lows one more time before the end of the year. And after that? We don't know, but if further rate cuts from the Fed are on the horizon, the dollar had better get used to exploring lower lows.

--Put together a falling U.S. dollar and rosy growth forecasts from China and what do you get? If you guessed higher commodity prices, you get a gold star. Yet among the institutions, there's mixed opinion about what metals prices will go up (or down) in 2008.
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