AUTOREFRESH 
Macro view emerging; The last shall be first
Day after day we write about risk aversion as Chinese tightening steps pop up or Greek debts implodes…What we haven’t done is take a step back and look at the bigger picture.
The dramatic currency moves over the last two months seem to be the result of a larger macro shift that is underway. For the middle months of 2009, the market was more than happy to borrow and sell dollars against anything with a yield or with a chance of price appreciation. The US was perceived to be circling the drain and hyper-inflation was just around the bend.
In the last two months, we’ve seen a shift in market behavior. Traders are no longer willing to buy gold at any price. They are no longer willing to borrow dollars to buy the currency of any country where China might one day source a natural resource. In short, we’ve become more risk averse, but not as a result of the headlines of the day (which punctuate that risk aversion) but for fears that a dollar bubble has been created.
China’s Zhu Min put a price tag on the carry trade yesterday in Davos: $1.5 trln. It would appear we’ve spent the last few months covering some of that $1.5 trln short and likely have a ways to go before we are done.
With reports of Asian central banks now selling EUR/USD on rallies at lower and lower levels, expect consolidation in the single currency in the near-term, not a swift reversal to the topside.
The surprisingly firm pound of recent weeks is another sign that the heavily shorted currencies of 2009 will be the out-performers of early 2010.
“The surprisingly firm pound of recent weeks is another sign that the heavily shorted currencies of 2009 will be the out-performers of early 2009.”
2010 ?
I wish I could go back to 2009 !