Monday, August 22, 2011

If QE3, Why is Dollar Not at New Lows?

Forex traders are some of the smartest out there. Market is rallying this morning on the notion that Bernanke will hint on QE3 on Friday. Well, if that is the case, then why is the dollar still above its 2011 lows? Many will say that dollar is holding up because of the risk aversion. I get that, but we also have swissy, yen, and treasuries to hide in. Forex traders know that QE3 on Friday is a pipe dream.  There will be no QE3 hint on Friday based on the way dollar behaves, in my opinion. Bernanke may perhaps hint on QE Lite, which is reshuffling of maturities on balance sheet (sell near-dated and buy long-dated). But that is it. We had elevated PPI and CPI last week, which killed any QE3 hopes. So I think that equity traders are way ahead of themselves today. Beware of risk on Friday when disappointment hits those traders with high expectations.

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