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Time to Fade the Dollar
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Wednesday, 14 May 2008
By Charles Delvalle
A few weeks ago in my blog, I wrote about how the dollar was destined to rally. As I expected, the dollar went on to rally two and a half cents (pretty good in the FOREX world). But will the dollar keep its rally going?It’s doubtful.
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You see, the dollar began rallying because traders expected the Federal Reserve to signal a stop to interest rate cuts. But once traders got the signal they wanted, what do they focus on next? The fundamentals.


We’ve just undergone our second straight quarter of sub-one percent growth. In an economy like the U.S., we might as well be shrinking.


Then you have an expected budget deficit of over $400 billion this year, a trade deficit that is completely out of control, and what could be the worst financial storm since the great depression. Does that sound like a bullish scenario to you?

When you look at the charts, you’ll notice that the US Dollar Index ($USD) recently found resistance at its 100-day moving average. This average has been resistance since April of 2006. Unless the Federal Reserve signals interest rate increases, it’s hard to see the dollar moving above this resistance.

With that said, it’s time to fade the dollar and get into the PowerShares DB US Index Bearish Fund (UDN) which goes up in value as the dollar drops.

Good trading,

Charles

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