Fortune telling V

A pit stop at Roubini’s blog to have an idea of how the US dollar may fair in 2007…

According to Nouriel, the prospects continue to be on the negative side:

I am not in the business of predicting high frequency movements of
currency over the horizon of a week or a month. But my macro and
medium-term perspective tells me that fall of the dollar – over the
medium term – has still a very long way to go.

 

Roubini
Nouriel Roubini

 

…further stating that the US dollar should weaken under the following conditions:

Specifically, if – as most likely – the relative growth slowdown of the
US relative to Europe and other advanced economies continues and if –
as most likely – the Fed continues its pause and then eases while ECB
and BoJ continue to tighten, the dollar should be weakening further
even in the short run. Softness in US asset markets (housing and
otherwise) would also be bearish on the dollar; further central banks’
portfolio diversification is also likely to continue and continue to
put further downward pressure on the dollar.

…and should strengthen, when:

This downward trend of the dollar may be slowed or temporarily reversed
by a number of factors: an improvement of the US trade deficit
following the recent dollar weakness; cautiousness by the BoJ in rising
policy rates thus making the yen carry trade persist for longer;
turmoil in EMs that – like in the spring – may lead investors to chase
the safety of US Treasuries. Also, in 2004 the euro peaked at 1.36 by
year end and this excessive euro strength was one of the causes behind
the sharp growth slowdown in the Eurozone in 2005 to a dismal 1.2%
growth rate that then triggered the 2005 weakening of the euro;
excessive short run appreciation of euro and/or yen may slow down
growth in these regions and put a ceiling to how high the euro and yen
could go in 2007.

I still hold that currencies will try to defeat each other on the way down… and, hence, assets is still the best place to park and protect investments.