Dollar Moving Higher?

By Jim Farrish | July 29, 2008 | 5:13 PM | 2 Comments

Quietly the dollar has been moving higher based on the dollar index. After hitting a high of 74.15 on June 13th, we established a new downtrend and a low at 71.31. Last week we broke above that trend and resistance of the 50 day moving average. Here we are today at 73.28. What does this mean to our portfolio? As you know I am of the opinion we need the dollar to strenghen to get the economy back on the right track. The first big plus from a stronger dollar is lower oil prices since crude is mostly priced in dollars. Secondly, we would stop importing inflation on goods. Gold would decline and potentially we could head off the rising inflation issue facing the US.

How to play this move in the dollar? You could trade the currency through futures or you can look at an ETF based on the US dollar. Proshares has two ETFs based on the dollar, (NYSE: UUP) is for playing the dollar moving higher and (NYSE: UDN) is for playing the dollar moving down. In this case you would use UUP. The chart shows clearly the break of the downtrend in play off the June high today.

Another option would be to short another currency ETF you believe will fair poorly against the dollar. For example the euro ETF, (NYSE: FXE) has moved down over the last week from $158 to $156 with the gain in the dollar. (NYSE: FXY) is the ETF for the yen and (NYSE: FXC) is the ETF for the Canandian dollar. There are others for various countries and their respective currency. I mention Japan and Canada because both charts show the currency at a key support level which if broken would give way to a nice downside play potentially against a strengthening dollar.

Hey Jim. I enjoy your Hey Jim. I enjoy your pieces. In my opinion, we need to get the economy back on track BEFORE the dollar makes a real and permanant recovery, not vice-versa. And that is something that I cannot see happening anytime soon since the main reasons for the dollar's weakness are: Record deficits and debt Decreased global competitiveness of the US Bernanke's printing frenzy Solutions: Monetary responsibility in Washington Restructuring of free trade Conclusions: Any dollar rally will only set traders up for a nice short, as I feel the real dollar crisis has not yet occurred. Submitted by Mike Stathis on Wed, 2008/07/30 - 4:23am » reply |

Thanks Jim Nice article. I have been hearing more about people taking the other side of the dollar by way of the euro. I appreciate the heads-up on the technicals of the yen and Canadian dollar. I will have a look. Dave Submitted by David Enke on Wed, 2008/07/30 - 1:06am » reply |