Walmart's New Health Food Push: Is It Too Hard to Swallow?
Bonds Are a 'Safe' Investment: A Big Lie Gets Even Bigger
The dollar rose to one-week highs against the world's major currencies Wednesday, as currency traders took profits following extensive dollar declines over the past 10 weeks.
Traders said Abu Dhabi Investment Authority's $7.5 billion investment in Citigroup (NYSE: C) contributed to the trading session's pro-dollar sentiment, on the belief that deep-pocketed, patient global investors may be able to provide capital to help keep key credit markets liquid in the quarters ahead.
The dollar improved to $1.4768 against euro, to $2.0681 against the British pound, and to 109.70 yen against the Japanese yen.
Currency trader Andrew Resnick, formerly of Next Capital of New York, told BloggingStocks Wednesday that the dollar's rise should not delude one into thinking there's been a fundamental change in currency conditions:
"I see nothing changing structurally. We've got the U.S. trade deficit, a slowing U.S. economy, and the possibility of another rate cut by the Federal Reserve, so pressure will resume on the dollar," Resnick said. "We may not see as many players in the carry trade, but the long-term bias remains dollar-lower."
In a carry trade, currency traders use or borrow money in a low-interest currency to buy a high-interest currency. Generally, a high-interest currency will rise against a low-interest currency, all other factors being equal. The risk is that sometimes the pair moves in the opposite direction, creating a losing trade.
Oil helps, for once
Resnick said the one bright spot for the dollar -- for the moment, at least -- is oil, which has declined on confirmation that Saudi Arabia has increased production to nine million barrels a day, easing concerns of spot shortages during the Northern Hemisphere winter.
"The Saudis' decision, and if OPEC can follow-through with a production increase, that will help stabilize the price of oil, for now," Resnick said. "Since the U.S. imports a lot of oil, that will lower its trade deficit a little, which will support the dollar." Oil gained 20 cents to $94.62 per barrel early Wednesday, after falling about $5 over the past 10 sessions.
Euro $1.60?
Longer-term, Resnick said the dollar will continue to fall until the aforementioned fundamentals are addressed. Resnick said he thinks the euro could rise to $1.60 by summer.
"We sense in the currency markets that European manufacturers are beginning to complain about the strong euro because it's hurting their export sales," Resnick. "If it continues, the ECB may be forced to support the dollar."
Resnick added that the U.S. "can do its part" by saving more, stimulating export sales to lower the trade deficit, and eliminating the federal budget deficit. All would support the dollar.
Resnick said he will be flat today, or will place no trades, but will be long with the euro, pound and Swiss franc with day trades against the dollar when the dollar starts to fall again.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
