Dollar’s Decade-Long Bear Market is Ending, Citigroup’s Fitzpatrick Says

The dollar is poised to reverse its almost decade-long bear market trend as global growth slows, Europe’s debt problems worsen and the Federal Reserve ends its asset-buying program, according to Citigroup Inc.

The dollar may stop weakening, as it has since the 2000- 2002 period, and enter a bull market for the first time since 1995, Tom Fitzpatrick, chief technical analyst at Citigroup Inc. in New York, said in a note to clients.

“Slowly but surely things have been building up,” Fitzpatrick said in a telephone interview. “We started to notice one by one all of these dynamics coming together in terms of the way the dollar was trading, the way equities were trading.”

The Dollar Index, which measures the greenback against the currencies of its six major trading partners, has fallen 38 percent since reaching a high of 121.020 in July 2001. It traded at 75.012 at 4:49 p.m. in New York.

The Fed this month will end a $600 billion Treasury-buying program it implemented in November in an effort to stimulate the U.S. economy. The central bank is unlikely to introduce another such program, Fitzpatrick said. As equities, commodities, and currencies linked to growth underperform, the dollar will benefit, he added.

The Standard & Poor’s 500 Index ended the week little changed after falling for six straight weeks. The Thomson Reuters/Jefferies CRB index of raw materials dropped 3.6 percent this week, the most since the five days ended May 6.

Sovereign Debt

European leaders are working to finalize a second rescue package for Greece, which may need to rollover maturing bonds to avoid a default. Moody’s Investors Service placed Italy’s Aa2- sovereign rating on review for possible downgrade, signaling concern about the contagion effects of Greece’s crisis.

“None of the above suggests a very pretty picture ahead and in a lot of instances suggests a possible reversal of the position of the abundant U.S. dollar supply and flow of money out of the U.S. and a possible reversal of the ‘monster carry trade’ of the U.S. dollar as a funding currency to the world,” Fitzpatrick wrote.

Low interest rates in the U.S. make the dollar ideal as a funding currency to buy higher-yielding assets elsewhere.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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