Aaron Task: "So how are you positioned currently in the Dollar?"
George Soros: "....Actually the dollar currently is very strong, much stronger than it was this time last year and that is actually a measure of the sickness, the fever chart in a way, because people don't buy dollars because they want to hold dollars, they buy dollars because they owe dollars and (__) their loans, so that is what is supporting the Dollar"
Aaron Task: Would you advise your fund managers to be long the Dollar at this point?
George Soros: "Well look, it's a very complicated thing and of course I know exactly what the dollar is going to do but I'm not at liberty to (tell)..
The USD is complicated because so many external forces push it around 24 hours a day. Also consensus estimates and sentiment indicators have been conflicting. The only thing that's been working is the trend and it's been up for months. In March the USDX put in a double top and broke down hard to retest the trend after the Fed announced it would buy treasuries and agency securities. I did say the USD would probably retest the 50 day moving average to decide it's true structural fate and it's just above it tonight ($86.30).
**It's rallying today, I also wanted to add the $DXM9 June USDX Future. It pierced through the 50 day on some volume and is wedging higher. Watch for a potential headfake but trend is your friend... Short the break IMO (not recommendation)
US Dollar June Future (optionsxpress.com)
Here's what's been affecting the USD. During the financial crisis the USD has been used as a safe haven and when the banks froze up institutions that needed US Dollar liquidity bid it up in the forex market. Also the delevering of assets funded by US Dollars, or the carry trade, started to unwind which bid up the USD. Also if deflation picks up that could increase the purchasing power of the USD making it more attractive.
China and other countries are very active with the USD because it's used for international trade settlement (For now at least, death by a million yuan swaps?). They also use USDs received from exports to invest in Treasuries. China reduced their Dollar holdings in February due to the fall off in global trade, however exports to the US increased so they used their dollars to buy $5.6B in Treasury bills. South Korea also plans on buying more Treasuries (Bloomberg). There are also interest rate differentials and central bank actions that can affect the USD. For example the Euro is falling against the US Dollar because of European Central Bank uncertainty. So there are a lot of forces at work. *Don't forget there's still a risk of inflation which could bury the US Dollar eventually. Obviously the Fed can't fund it's own debt forever!
So in conclusion, US Dollar Index longs will win until the trend breaks. Plain and simple. The USDX futures curve (Cash->September) is slightly up and also the May Call/Put premium ratio is 1.32 and June's is 2.54. But be careful, just a month ago the May ratio was at 0.31 so sentiment can change quickly. I'd watch to see if the chart can hold above the 50 day moving average and the mother trend. If that level fails I'd look to position shorts to play a reverse head and shoulders break down. $UUP (US Dollar Bullish ETF) option activity has been interesting. I'm not sure if someone is hedging longs or selling puts for premium but 5,000 $25 puts have been expiring worthless. The September chain is also positioning for a range in size. Soros if you read this please comment with your position, thanks..
