Don't Look Now, But the Dollar Could Be Headed Higher


Bernanke won't do much for the dollar on Wednesday, but this analyst says the end of QE2 could - a lot.

Gee, Ben Bernanke doesn't have a lot of great material to work with at his press conference, does he?

From retail sales, consumer confidence, and home sales to unemployment and manufacturing, a whole lot of indicators have moved in bearish directions since late April, and that can't be good for the dollar.

But - wait for it - we have the end of QE2 to look forward to. Kathy Lien, director of global research and analysis at GFT Forex, sure is. When the first round of quantitative easing ended, she says, the dollar index rose "as much as 10%" as the greenback rallied against riskier currencies.

Lien wouldn't buy just yet. "Even if the central bank believes that the pull back is temporary, it will be difficult for them to find anything positive to say about the data," she says. "Given the prospect of more negative sentiment from the Fed, being long dollars going into the FOMC rate announcement and Bernanke’s press conference could be a dangerous proposition, particularly against the Japanese Yen."

So when would she get in? "I would recommend holding off on buying dollars until the QE is completed at the end of the month," she told me. "By that time, we should also get some clarity on Greece – if the dollar behaves like I expect, we could be looking at a rally that is a minimum of 5-7 percent so there will be time to get in."

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