Is Multilateral US Dollar Intervention Likely?

With the Fed’s credibility waning, market technicals broken, commodities on the verge of major breakouts, and the US Dollar within striking distance of new lows, we believe we are now in the red zone for an aggressive move by the US government to intervene in the foreign exchange market and stem the slide in the US dollar. The dollar slide has undoubtedly been the culprit for much of the markets malaise, as the relentless decline has put significant upside pressure on commodities pushing oil and gasoline to all time highs.

With the Fed unable to adjust monetary policy favoring a strong dollar (i.e. higher rates) for fear of adding further strains on an already cash-strapped consumer, we are looking for the US government to step in and use the untraditional measure of intervention within the foreign exchange market in an attempt to not only break the back of a raging bull market in commodities, but more importantly regain global confidence in the greenback and the US financial system.

We are looking for the US government to step in multilaterally, joining hands with their european counterparts as europeans also view the soaring euro as an unwelcome hinderance to domestic growth due to the fact that it makes their goods more expensive to foreign buyers and thereby makes them less competitive in the global marketplace. We are looking for possible intervention this Sunday night or next week, and as such have taken a long position in the July 115 DIA calls here at $1.76 as the DOW is now firmly in oversold territory, and either way a bounce is very likely next week.

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