It's time for our annual "dollar bashing." It's not intentional... not really. It's not our fault that every year, right around this time, currency traders lose their minds. Then they lose their wallets. It has become a Memorial Day tradition. This year, though, it comes with a twist.
During each of the past three years, the most popular trade on the planet – going into Memorial Day weekend – was to be long the dollar and short the euro. Traders were betting on Europe falling apart.
That seemed like an entirely reasonable conclusion at the time. After all, Greece was threatening to default on its debts. Spanish banks were on the brink of collapse. Italy, Ireland, and Portugal were all
facing liquidity issues.
But the world has a habit of not coming to an end. And popular trades have a habit of blowing up. Back in 2010, we warned you the long-dollar/short-euro trade was going to capsize. And it did. The dollar fell 10% in two months. In 2011, the dollar rallied 5% going into Memorial Day weekend. It gave up all those gains just one month later.
Last year, we once again warned that the most popular trade on the planet was going to blow up. Sure enough, the dollar dropped 6% and hit a new low for the year by the end of the summer. Today, the dollar index is trading at its highest level in three years. Currency traders don't seem to care about the Fed's constant money printing eroding the dollar's value. They're buying the buck anyway. And this year, they're selling the yen. The Japanese yen has fallen to its lowest level relative to the dollar in five years. Take a look...