Der Dollar-long Thread

1. ist dieser Prozess schon lange im Gange und bereits in seiner Spätphase, d. h. weitgehend abgeschlossen.

2. Ist der Kursverfall, den diese Umschichtungen auslösten, bereits JETZT im Dollar-Kurs enthalten.

3. Wurde die Tendenz (Kursverfall des Dollars) durch massive Future-Käufe von Hedgefonds, die als Trendfolger bestehende Trends verstärken, maßlos übertrieben (ähnlich wie beim Öl). Zurzeit ist das Long/Short-Verhältnis bei Euro-Futures 7 zu 1 - ein Rekordwert, der nach Abbau geradezu schreit. (Beim Abbau dieser Position STEIGT der Dollar, siehe Öl-Preis im Sommer 2006).

4. Pendeln Währungspaare langfristig um die Kaufkraft-Parität, die bei EUR/USD etwa bei 1,05 bis 1,10 liegt. Demnäch ist der Euro jetzt schon ca. 30 % überbewertet.

This makes a good talking point only if one plays down the modest size of the numbers involved and ignores other important data. The $5.3 billion decline in dollar-denominated deposits in the Middle East still means that 65% of the deposits are in dollars.

The takeaway from the UAE's decision is the same; after implementing its diversification program, the UAE still will have 90% of its reserves in dollars. Its diversification program entails the sale of about $2 billion over the next several quarters, which can be easily absorbed by the foreign-exchange market, where the turnover is estimated at $2.5 trillion a day or more.

Not a Trend

That claim countered, pundits would proffer that it's not that these numbers are significant in themselves but in what they represent, being just the tip of the proverbial iceberg. While this is possible, it still seems unlikely. Surely the wars in Iraq and Afghanistan have educated us all on some of the fragmented nuances of Middle East politics. By now, few must really believe that most of the region will follow Iran's leadership in general and financial matters specifically.

The Treasury's TIC data [Kapitalflüsse in die USA - A.L.] shed light what is really going on. The most recent data cover October 2006, and indicate that OPEC countries held $97.9 billion in U.S. Treasuries. That's up from $75.4 billion in October 2005 and $62 billion in October 2004. Whatever diversification is occurring did not prevent OPEC from buying more Treasuries in the past 12 months than in the prior 12 months or the 12 months before that.

China has amassed more than $1 trillion in reserves and serves as the focal point for many observers who are concerned about the impact of diversification. Yet China holds more Treasuries now than ever before. The nation's holdings have gone up for the last 12 consecutive months without fail. In the first 10 months of 2006, China's U.S. Treasury holdings increased by $31 billion.

It is true that China's Treasury holdings increased by $78 billion in the January to October period in 2005, but this points to another aspect of the diversification story: diversifying out of Treasuries into other and higher-yielding, dollar-denominated paper such as agencies and corporate bonds as well as dollar-denominated bonds issued by other countries, such as Germany's KfW.

The TIC data indicate that foreign investors made a net portfolio investment of about $875 billion during the first 10 months of 2006. During a year in which the diversification story reached a fevered pitch at times, foreign investors probably matched if not surpassed 2005's record $1.2 trillion in purchases of U.S. assets, including direct investment.

Among the most fickle investors in U.S. Treasuries are not foreign investors but the American investors who take advantage of the tax-free havens in the Caribbean. The Caribbean community sold about $9 billion of U.S. Treasuries in the January-October 2006 period, more than offsetting the $2 billion bought during the entire calendar year 2005.

More recent data than the October TIC report suggest there's less to the reserve diversification story than meets in the eye in the press or on television. The Federal Reserve offers some basic custodial services to foreign central banks. It reports its holdings for them every Thursday. In December, the Fed's custody holdings for foreign official accounts swelled by about $34 billion, on top of a gain of $18 billion in November. The December rise is a little bigger than the increase recorded during the August-November period.

Stay Independent

What does all this mean for the dollar's outlook? It means that one needs to arrive at a view independent of what the central banks may or may not be doing. And it suggests that in periods when overall reserves are growing and financial assets are growing, diversification can take place without dollars having to be sold on a net basis.

The nearly 14% rise of sterling against the dollar this year and the just more than 11% rise of the euro probably contributed more to the diversification of reserves and foreign-exchange deposits than outright dollar sales.

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Marc Chandler has been covering the global capital markets in one fashion or another for nearly 20 years, working at economic consulting firms and global investment banks. Currently, he is the chief foreign exchange strategist at Brown Brothers Harriman. Recently, Chandler was the chief currency strategist for HSBC Bank USA. He is a prolific writer and speaker and appears regularly on CNBC. In addition to being quoted in the financial press, Chandler is often a guest writer for the Financial Times. He also teaches at New York University, where he is an associate professor in the School of Continuing and Professional Studies.

Dass der Greenback international seinen Status als Leitwährung einbüßt, ist zum jetzigen Zeitpunkt unwahrscheinlich. Der US-Finanzmarkt ist immer noch deutlich liquider und effizienter als der europäische. Auch der Handel mit Rohstoffen wie Öl dürfte auf absehbare Zeit weiter in US-Dollar abgewickelt werden. Dazu kommen in Europa Vorbehalte dagegen, die mit einer Leitwährung einhergehende Verantwortung zu übernehmen – obwohl die Europäische Zentralbank hier offener ist als früher die Bundesbank.

Ökonomisch und vor allem politisch ist die abnehmende Dominanz einer Währung, in dem Fall des US-Dollars, eine gute Nachricht. Das dürfte den Aufwärtstrend der Gemeinschaftswährung auf lange Sicht unterstützen. Für den Euro spricht zudem die schrumpfende Zinsspanne, die eine Anlage in Euro zunehmend interessanter macht. Da die Wirtschaft in der Eurozone wie oben beschrieben aktuell robuster wirkt als die US-Wirtschaft, sollte der Kurs des Euro in den kommenden Wochen und Monaten weiter anziehen. 1,35 US-Dollar für einen Euro sind dabei eine erste Zwischenetappe. Bis Jahresende sind Kurse bis 1,40 US-Dollar durchaus denkbar.

Carsten Stern
FXresearch
FXdirekt Bank AG

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Heute, am Montag, schreiben die Spezis nach der Überraschung von Freitag, als EUR/USD unter 1,30 fiel:

Euro/Dollar - 08.01.07 09:14

Starke US-Arbeitsmarktdaten haben EUR/USD am Freitag unter die 1,30er-Marke gedrückt und auf ein Tagestief von 1,2982 zurückfallen lassen. Die Zahl der neu geschaffenen Stellen in den USA ist im Dezember auf 167.000 angewachsen und liegt damit erheblich oberhalb der Konsensschätzung von 100.000. Zudem wurde der Vormonatswert von 132.000 auf 154.000 kräftig nach oben revidiert. Die US-Arbeitslosenquote verharrte im Dezember bei 4,5% (Prognose: 4,5%). Die durchschnittliche Wochenarbeitszeit blieb bei 33,9 Stunden, während die US-Stundenlöhne im Dezember um 0,5% zulegten und damit stärker als mit 0,3% erwartet. Cathy Minehan, Präsidentin der Federal Reserve Bank von Boston, sagte später, sie sehe trotz der jüngsten Abschwächung der US-Inflation in dieser die größte Herausforderung für die US-Notenbank.

Seitdem EUR/USD Anfang Dezember ein Jahreshoch bei 1,3369 erreicht hat, befindet sich das Währungspaar auf Konsolidierungskurs. Mit Erreichen der 1,2982 im Tief hat EUR/USD nunmehr den gesamten Anstieg von alten Jahreshoch bei 1,2980 ausradiert. Auch die technischen Indikatoren im Tageschart stimmen wenig hoffnungsvoll. Während der MACD in seiner Standardeinstellung weiter auf sinkende Notierungen hinweist, hat der Aroon-Indikator ein Verkaufssignal geliefert (rote Down-Linie auf 100 gestiegen). Auf die nächsten Unterstützungen trifft EUR/USD be1 1,2980, 1,2960, 1,2940. Die nächsten Widerstände lassen sich bei 1,3065, 1,3090, 1,3105 und 1,3120 lokalisieren.

Nachdem zu Handelsbeginn bereits die deutschen Einzelhandelsumsätze im November mit einem Minus um 0,5% im Jahresvergleich gemeldet worden sind (erwartet: +0,3% nach zuletzt -0,5%), kommen um 12:00 Uhr CET die Auftragseingänge in der deutschen Industrie im November (Konsens: +5,6% nach +10,0% im Vormonat). Aus den USA werden um 21:00 Uhr CET die Verbraucherkredite für November gemeldet (erwartet: +5,5 Milliarden USD nach zuletzt -1,2 Milliarden USD).

Fazit: Angesichts der Tatsache, dass zum Wochenauftakt kaum Wirtschaftsdaten auf der Agenda stehen, dürfte der Handel vor allem von technischen Faktoren geprägt werden – und die weisen weiter abwärts. Hinzu kommt, dass sich die Auftragseingänge in der deutschen Industrie im November erwartungsgemäß auf einen Anstieg um 5,6% im Jahresvergleich abgeschwächt haben dürften nach +10,0% im Vormonat – ein Belastungsfaktor für den Euro. Risikobewusste Anleger setzen daher am Montag auf eine EUR/USD-Shortposition, warten dafür aber eine Erholung auf 1,3090 ab. Ziel ist die 1,2940er-Marke. Alternativ bieten sich prozyklische Verkäufe bei Unterschreiten des Freitagstiefs von 1,2982 mit einem Trailing-Stopp von 30 Pips an. Die heutige Handelsspanne von EUR/USD erwarten wir zwischen 1,2900 und 1,3105.

Tomke hansmann
FXresearch
FXdirekt Bank AG  

And yet officials appear to think that are saying something substantive when they say foreign-exchange prices should reflect fundamentals. Of course they should. Can they do anything but reflect fundamentals? The real issue is not fundamentals vs. something else but which set of fundamental factors is the key consideration for investment and speculative decisions.

The Capital Issue

When G7 or International Monetary Fund officials say that currencies should reflect fundamentals, it seems like they are referencing external imbalances. This underlies the call for Asian currencies to appreciate and the general belief that the U.S. dollar has to decline.

Yet we know that the money that is turned over in the currency market far overwhelms the flow of goods and services. Private estimates of daily volume in the foreign-exchange market are in excess of $2.5 trillion a day. That means one week's turnover in the foreign-exchange market is sufficient to cover a year of the world's trade. It seems unreasonable then to attribute a privileged place to the trade of goods and services in explaining or forecasting changes in foreign-exchange prices.

Rather than place undue emphasis on the trade account, investors and policymakers are better served focusing on the capital account. The fundamental considerations there seem to explain a greater part of market developments and foreign-exchange prices than trade balances.

The Yen and the Yield Curve

French and German officials have most recently expressed concern about the weakness of the yen. But the yen's weakness reflects a fundamental judgment of market participants.

That judgment isn't based on the fact that Japan's trade surplus is growing or that Japan is experiencing the longest economic recovery in its modern history. Rather, the key fundamental that market has been focused on is the low interest rate, the prospect that compared with Europe and the U.S., Japan's rates will remain relatively low. The steepness of the Japanese yield curve is likely to hold.

It is difficult to prove this thesis true, but consider how Copernicus proved that the earth went around the sun. The short answer is, he didn't. But by assuming that the earth went around the sun, Copernicus was able to explain other "facts," or more correctly, observations.

Similarly, if we assume that the foreign-exchange market is being driven more by capital account considerations than by trade factors, a number of other "facts" make sense. This thesis helps explain why the Swiss franc is weak as well. After Japan, Switzerland offers the lowest interest rates in the world. The Swiss National Bank key rate stands at 2.0% (the midpoint of the 1.5%-2.5% three-month London interbank offered rate, or LIBOR, band). Speculators at the International Money Market have not been net long Swiss francs since early June.

Flush With Liquidity

In addition to the price of money, the quantity of money is an issue for the capital markets. Global liquidity, measured by money supply, is ample. A contrarian indicator of the importance of money supply is the fact that the Federal Reserve stopped reporting the broad-based measure called M3 almost a year ago.

However, other measures suggest that U.S. money supply is growing at a robust pace. Consider that when the Fed began raising interest rates in this cycle back in mid-2004, M2 was growing at an annualized rate of 4.6%. As of the end of December 2006, M2 was growing at a 5.3% clip. The growth rate accelerated in the fourth quarter of 2006, and the December reading was the highest since February 2005.

A year after the European Central Bank began raising interest rates, money supply is expanding at its fastest rate in nearly two decades. The ECB reported Friday that December 2006 money supply rose 9.7% above year-earlier levels. This is more than twice the 4.5% reference rate. In November 2005, the month before the ECB began entered its tightening cycle, M3 was growing at a 7.5% pace.

In the U.K., M4 grew at a 12.5% year-over-year pace in December. This represents a modest slowing from the 14.4% peak recorded in September, but it is still well above nominal growth rates, and the 12-month average is at its highest level in more than a decade.

In Japan, normalization of the central bank's reserve provisions to the commercial banks slowed the growth of the monetary aggregates. But the measure of the broad definition of liquidity (M3 plus CDs) rose at a 2.7% pace in December. This compares with a 2.3% pace in June, the month before the Bank of Japan hiked rates by 25 basis points, up from zero. This matches the fastest pace since May 2005. Moreover, we have the fact that since early 2006, bank lending has turned positive for the first time in years.

Although China is arguably still a developing economy, the fact that in purchasing-power parity terms it is the world's second-largest economy and in nominal terms it is the world's fourth-largest economy (and could surpass Germany next year to move into third place) means we would be remiss if we did not include China in this brief survey of liquidity. Money supply, measured by M2 in China, was rising at almost a 17% year-over-year rate in December. By China's own assessment, this is excessive.

Hammering Home the Point

This survey illustrates another important feature of the fundamental landscape for investors and policymakers. Despite the rate hikes, money-supply growth has accelerated, leaving the world flush with liquidity. Just as a high tide hides the rocks below the surface, so too does the flood of liquidity encourage a move into higher-yielding and riskier assets.

This produces what bureaucrats and economists regard as the mispricing of risk. And of course this speaks to the carry trades and the weakness of those currencies, such as the Japanese yen and Swiss franc, in countries that also have substantial current account surpluses. It also speaks to some of the strength of emerging-market currencies.

If the official claims are right, that the currency markets should reflect fundamentals and that they currently don't, what is the remedy? As the psychologist Abraham Maslow once observed, if all one has is a hammer, all problems look like nails.

It is abundantly clear that the G7 members aren't prepared to intervene materially in the foreign-exchange market to put their taxpayers' money behind their assertion (not argument) that currencies should reflect trade fundamentals. All that the "hammer" officials have are words -- that is, verbal intervention -- and there are obvious limits on their efficacy.

Consider that in recent days -- and ahead of the G7 meeting on Feb. 9-10 -- German officials have verbally intervened to strengthen the yen. At the end of last week, Jan. 19, the dollar finished near JPY121.24. It is modestly higher now, at JPY121.50. The euro was trading near JPY157.10 and now is just below JPY157, essentially unchanged. Sterling is about 0.5% lower against the yen than it was a week ago, but this appears to reflect a correction in sterling after dovish comments by Bank of England Governor Mervyn King and fading speculation of another rate hike here in the first quarter of 2007.

If the thesis sketched here is accurate -- that the currency market reflects fundamentals, but the fundamentals of capital market considerations rather than trade positions -- then the underlying trends may persist as long as the world's liquidity remains abundant.

Investors and speculators respond to incentives. If the incentive structure changes, investment patterns and speculative propensities will also change. It seems likely that the financial engineering and the further development of the capital markets allow for the extension of the credit cycle, but officials still can strongly influence, even if not dictate, the incentive structure.

If policymakers want the market to price risk in greater accordance with their models and want the yen and Swiss franc to strengthen, they have to do more to reduce liquidity and alter the interest rate outlook for Japan and Switzerland.

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#6666cc; HEIGHT: 1px" width="100%" color=#6666cc noShade>Marc Chandler has been covering the global capital markets in one fashion or another for nearly 20 years, working at economic consulting firms and global investment banks. Currently, he is the chief foreign exchange strategist at Brown Brothers Harriman. Recently, Chandler was the chief currency strategist for HSBC Bank USA. He is a prolific writer and speaker and appears regularly on CNBC. In addition to being quoted in the financial press, Chandler is often a guest writer for the Financial Times. He also teaches at New York University, where he is an associate professor in the School of Continuing and Professional Studies.