The dollar rally spells trouble for some investors
It was about 4 weeks ago now that I said I thought the dollar rally was not a fundamental move, but a monster bear market rally which will end up hurting dollar shorts. Back then, the Euro was trading for 1.5164 dollars. Today, the Euro will only get you 1.426 dollars. That’s a move of 9 big figures in 4 short weeks on the Euro-Dollar cross. Some hedge funds are getting slaughtered as we speak, guaranteed. Will we soon see announcements that some hedge funds have collapsed? I think so.
We have already seen a major collapse at one hedge fund due to the dollar move. Ospraie Fund is closing after a 38% loss on the year. But, the magnitude of this dollar move is truly enormous. Gold is down from over $1000/oz. to $800. Silver is down. Oil is down to nearly $100 a barrel. And all the major currencies are taking a beating including the Swiss Franc, the Euro, Sterling, the Loonie, and the Australian Dollar. The U.S. Dollar is rising against everything and that is bound to mean some major losses at funds that were betting against the dollar. The Yen and the Canadian Dollar seem to be the only things holding their own amongst the major currencies — and the Yen is rising only because of the unwind of Yen carry trades.
I would be pleasantly surprised if we did not get another few major announcement regarding hedge fund losses in the near-term. The U.S. Dollar should be a weak currency given the structural imbalances in the global economy, foremost amongst them the gaping current account deficit in the United States. However, for now, the dollar is rising and that will mean pain for those adventurers who were making a one-way bet on dollar
Is the market telling us something? Is Europe weaker than North America? Or is this just the product of intervention?