- Buy Rydex Strengthening Dollar 2x Strategy (RYSBX) ETF

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Buy Rydex Strengthening Dollar 2x Strategy (RYSBX) ETF

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Buy Rydex Strengthening Dollar 2x Strategy (RYSBX) ETF

Wednesday, 10 September 2008

By Charles Delvalle
A few weeks ago I talked about how the U.S. Dollar Index ($USD) was hitting an eight- year resistance line. I also said that it was unlikely the dollar would rally above this point and that you should short the dollar.
Well, the dollar broke above its eight-year resistance line. And the implications could be huge. We could see a dollar rally for the next six to twelve months.
So why did the dollar rally? It’s a combination of things really. But it begins with the intervention that the US, Japanese, and European Central Bank implemented earlier this year. This intervention acted as a bottom for prices during March (and could still be going on today).

Another reason the dollar is rallying is because global growth is beginning to show signs of slowing. As other economies begin to contract, they will drop interest rates and currency valuations will follow.

The perception is that the U.S. is about one year ahead of the rest of the world when it comes to economic activity. Under that assumption, the U.S. economy would resume growth about one year before the rest of the world.

Granted, I only see the economy getting worse for the next six to twelve months. So seeing the dollar rally in this environment just doesn’t make much sense. But, in the currency markets, the fundamentals take a back seat to what the markets feel is happening.

At this point, the dollar could continue to rally up to 80, where it would hit support/resistance line (it used to be support up until late 2007). If the dollar breaks through 80, then (incredibly, might I add) 95 could be the next stop.

The best way to play this move is by buying into the Rydex Strengthening Dollar 2x Strategy (RYSBX) ETF. This ETF goes up two percent every time the dollar moves up one percent.

If you’re feeling saucy (you know, risky), then short the GBP/USD currency pair. This allows you to make money as the British pound drops vs. the U.S. Dollar.

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