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Investing Ideas Betting Against the Buck?
Investing Ideas Betting Against the Buck? 
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| Betting Against the Buck? |
| Friday, 05 October 2007 | ||||||||
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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. Just take a look at what the European central bank did on Thursday. They kept interest rates steady even when faced with higher inflation in their markets. But they realize that if the euro gets too strong against the dollar, exports to the U.S. will slow down as European prices become more expensive. A slowdown in exports means a slowdown in their economy. And that’s the last thing they want. 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 This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Good trading, Charles
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