LONG the US Dollar was a trade that for much of 2013 was a consensus view, but to many this trade failed despite the backdrop of a stronger US economy and the Fed in the wings to taper.
But given a closer look this trade was absolutely correct, just not as obvious as it appears looking at standard metric, or as successful for some depending on how they played it.
We have been unabashed Dollar bulls at EmergingMoney.com despite the negative implications it could have for emerging markets.
Being long the USD was a consensus trade for 2H ’13 and for 1Q ’14. For much of last year this trade was a frustrating one, but so far in 2014 the call appears correct, and USD longs are gaining momentum.
Although speculative shorts against the Dollar have clearly increased recently, this trade remains intact.
It’s the Dollar versus the Euro that has been the one area of disappointment and really the only place where being Long that USD hasn’t worked. This is largely the reason the range bound price action of “DXY” other wise known as the Dollar Index.
The Dollar Index is a weighted basket of 6 currencies versus the USD where the Euro has a 57% weighting. The other currencies in this basket are: Canadian Dollar, British Pound, Swedish Krona, Japanese Yen and the Swiss Franc.
The Japanese Yen, which has indeed sold off vs. the USD over the last year on Abenomics in Japan, is only 13% of the DXY.
Thus, Dollar LONG trades remain successful and willl remain successful as US drives global growth and the Fed yearns to exit bond buying.
