Archived IMT (2008.12.24)

The last 3 weeks were a clear manifestation that the dollar rally of July-November was a result of: (i) covering of massive dollar short positions in futures and options markets; (ii) repatriation from EM and commodity funds; and (iii) 180-degree turns in the monetary policies of all major non-US central banks. I have persistently warned that the more these three primary factors played out in Q3 and Q4, the more spectacular would the next dollar decline become. Despite showing its biggest weekly drop against EUR last week (and potentially biggest monthly drop on record), the dollar has not yet fully entered the next phase of its multi-year bear market. The central banks of the Eurozone, England, Canada and Australia have yet to further ease monetary policies, albeit not to the same extent as in the US. And with prolonged risk aversion in global equities in H2 2009, the greenback has not concluded its risk-driven gains against GBP and NZD.