The US dollar comedy

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As I scan the news articles everywhere, I have noticed almost everyone and his dog is becoming increasingly bearish on the US dollar. The US Dollar Index was one of the major disappointments of 2017, depreciating by 9.0% and putting in its worst performance since 2003. Effectively, the dollar will get thrashed again in 2018 is the popular view. 

Some of the analysts argued that all good news is already priced in the US dollar. It makes sense from the fundamental perspective. However, lots of things make sense in the investing world until Mr. Market decides to prove rationales flawed. Just ask the old timers who have seen enough in the markets.

According to the latest Commitment of Traders report, released on December 29 by the Chicago Futures Trading Commission, large speculators reduced their net short positions on the US dollar.

I do care about fundamentals. Over time, the macroeconomic fundamentals will reassert themselves. The key is interest rate differentials and the divergence of monetary policy that still has more room to run. Oh, what if the US were to grow a lot faster than expected in 2018?

At the current dollar levels against some other emerging market currencies, there is long-term value for investors who do not care about the daily noise.

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