Yield chasing with a Federal Reserve Q.E priced in: USD weakness

The US dollar has been hit by the possibility of further quantitative easing (printing money) by the Federal Reserve. So risk averse buys on the USD (short to medium term) won't happen unless Japans deficit blowouts and awakens Godzilla (bond markets) and starts to fuck up the country and get their government to act all crazy.

With possible mid/long term USD risk aversion on a China/US trade war, or war, Europe debt meltdown or de-leverage

Risk Aversion trades on the USD started from the 19th May 2010 at 87.46 and peaked on the 8th June 2010 at 88.51; this was primarily because of the European Debt crisis that has since been papered over. With the US economy looking very much heading towards a double dip recession the USD at this point is now being sold in expectation that the Federal Reserve will re-buy long dated Treasures and attempt to flood the US economy with liquidity, it failed last time and it most probably will fail this time, as the banks will just soak up the liquidity that may then go into trading or filling holes, if the Obama administration cannot somehow force the banks to re-lend; the US consumer will not see any benefit from a money print job via the Federal Reserve, rather the USD will weaken thus effecting purchasing power at this point oil is now gaining strength on USD weakness.

Quantitative easing (Q.E) has a negative effect on the US consumer.

This Q.E part 2 will not drive stocks like they did in 2009 (in hand with a globalized fiscal and monetary print job), in an almost non volatile smooth buy/sell spread. There is too much mess (globally/ economically) and Japan and China should not be dismissed with invertible short/mid term problems; I would say that, and some economist are making the call for a Chinese soft landing in 2010, is very misleading and they should look at history when in in 2007 they said the same about the US economy i.e soft landing and it crashed hard on the back of a over-leveraged property market (now it's Asia/China's turn).

High yields on FX and related derivatives are attractive with institutional buyers now holding long position's on high yield currencies. Good to watch when positions (longs/volume) are cut on risk aversion (high yield) for puts and short positions, as most high yield assets are looking overbought.

USD/crude oil chart: showing USD weakness compared with oil price (note divergence)