Betting Against the Buck?

By Charles Delvalle

Dear Reader,

It seems like everywhere you turn, there is a new headline about the dollar crashing.  Yes, the dollar hit a new all-time low against the euro.  But shorting the dollar right now could lead to losses, not gains.

What most people don’t understand about the currency markets is that when you buy a currency, it’s like you’re buying stock in that country.

So when you’re buying euros, you should have a strong belief that Europe’s economy is doing well.  And if you’re selling U.S. dollars, you should have a strong belief that the American economy isn’t so hot.

And just like a stock, when the price of a currency swings too much in one direction, eventually it will reverse course.  That’s the point we’re at with the dollar right now.

The dollar has lost a lot of value against virtually every other major currency out there.  And it lost value because of huge fundamental reasons.

But the dollar can’t sell off forever.  And the thing to remember here is that as the dollar gets weaker, other countries will fight to keep their currency value stable.

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The British central bank also decided to keep interest rates steady.  But they have a bigger problem than the rest of Europe.  Just recently, there was a run on Northern Rock, Britain’s fifth largest mortgage lender.  And to make matters worse, it looks like their booming real estate market is starting to reverse.

So now you have a case where Britain and Europe are both projecting a slowdown in their economies.  What do you think that’ll do to the U.S. dollar?  It’ll bring more buyers, as people start noticing the risk in buying the euro or the pound.

It also shows that the U.S. isn’t the only economy slowing down.

When I look at the familiar green glow of my currency charts, I see the dollar as oversold against every major currency.  And it doesn’t matter what time frame you look at either.  You’ll see the same thing on nearly all of them.

That’s pretty freaking extreme.  And it’s why I don’t suggest shorting the dollar right now (even though I think long-term the dollar is doomed).

In fact, if you’re bold, you might want to go long the dollar right now.  I would suggest the dollar versus the yen.  Of course, this recommendation is only for those of you who know how to dabble in the currency markets.

If you’re new to the currency market, there are a few other things you should be aware of before you get involved.  But I can’t cover those today.

So let’s do this.  If you have any question regarding the currency markets … as in how to trade them, how they function, any good deals, anything at all, just send an e-mail to feedback@investorsdailyedge.com.

Good trading,

Charles

[Ed Note: On Wednesday, Charles told his subscribers of Global Profits Hotline to capture a seven-day gain of 34 percent.  While this stock’s option could easily rise another 100 percent in the next month or two, you won’t be able to capture this opportunity.  But in the next week, Charles looks to send out yet another recommendation with the same profit potential.  To find out how to get these recommendations, click here.]

Market Watch

A Safe Dollar Play

By Charles Delvalle

As I just said in today’s column, I think the dollar is ready for a small rebound.  And if you play your cards right, you could be sitting on a hefty profit.

As you can see from the chart above, the dollar should rebound for two big reasons. 

First, it recently underwent a dramatic fall from the 82 area down to 78.  That’s a drop of nearly five percent, which is extreme for any currency.

The second reason why the dollar should rebound is simply because the RSI just came off a strongly oversold level.  The last time that happened, the dollar rallied 14 percent.  Could the dollar do that again now?

With interest rates and the economy heading down, it’s not likely.  Instead, I think the dollar will climb back up to the 80 level and then resume its downward spiral.

Sadly, there aren’t that many ways to directly play a small rise in the dollar.  You could buy the PowerShares Dollar Bullish ETF (UUP), but you’ll make only a five-percent return on your money.

Instead, wait until the dollar hits 80 and buy the PowerShares Dollar Bearish ETF (UDN) to leverage the dollar’s loss in value as it moves down.

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