The Dow is up by 52 percent since the March low, the DAX in Germany is up 59 percent. Whilst there may be some different factors driving those gains in America and Germany the trend is that investors are taking on more risk as bond yields continue to offer very little return.
A major factor behind the dollar's losses in this period has been the risk play. When the stock market has gone up, the dollar has gone down and vice versa.
Jamie Jemmeson from CorporateFX told European Closing Bell that risk is now the major factor influencing the dollar and he believes its performance over the coming months will be influenced by how confident investors are in the equity rally.
- Watch the full interview with Jemmeson here >>>
So if you are an American investor and believe the stock rally will continue then you should consider buying stocks within the euro zone. With most currencies in Asia pegged to the dollar and sterling doing very badly, the euro has been rising at a rate that is beginning to alarm European exporters and politicians. Recent German data showed the rise in the euro is making things harder for the exporters. So to really play the long equity, short dollar story you need to focus on European stocks that are not exposed to international markets and are instead focused on the euro zone for sales.
Thomas Raber, a fund of fund manager at Alvine Capital with $1 billion dollars invested the hedge fund industry, says in recent months he has seen higher demand from investors for funds priced in euros, at the expense of those priced in dollars. Thomas, like Jamie believes the risk play is a big part of this trend but also believes investors from China and the Middle-east are trying to diversify away from the dollar due to high exposure.
- Watch the full interview with Raber here >>>
The problem with this trade is that the rally may be beginning to come to an end. The bears have missed many of the gains since March but if things turn and the dollar rises as investors search for a safe haven then you stand to lose twice, once on falling equity prices and then again on a weaker euro versus the dollar. It all depends on how big a risk you are willing to take on the rally continuing.