Nothing Safe About the US Dollar!
By Mike Conlon | September 9, 2009
A lot is made about the safe-haven status of the US dollar and the inverse correlation it has with stocks and commodities. When the economy is seemingly doing well, risk-takers look to sell dollars and buy higher-yielding, riskier currencies to earn interest. This is more commonly known as a “carry trade” and I described it in an article last week.
The carry trade is a very easy way to make money and it was formerly only available to sophisticated investors. Now, you can participate from the privacy of your own home! The basic premise behind the carry trade is that you want to borrow a low-yielding currency and invest in a higher-yielding currency. You make the difference in interest. Sounds better than putting your cash in a bank savings account, doesn’t it?
*Do you know what one of the lowest yielding currencies is right now? That’s right, it’s the US dollar!
And this is likely to continue for some time. If the dollar is going to continue to decline, it doesn’t sound very safe at all, does it? Here are a few reasons why the dollar decline will continue and why you should be concerned.
1. The United Nations at their most recent meeting asserts the role of the US dollar should be reduced as the world’s reserve currency. While this is “nothing new”, this time it may be different. If the dollar continues to fall then alternate solutions may be sought.
2. The Chinese are now “alarmed” at U.S. money printing. This may cause them to take alternate forms of action and could lead to them not only not purchasing future US debt, but actually selling out of the dollar. This could trigger a massive sell-off in the dollar as the Chinese are one of the largest holders of US dollars.
3. The US Fed and Bernanke are going to keep interest rates artificially low for as long as it takes for the economy to recover. While analysts can make projections about when this might be, it could be a very long time before we recover. This will lead to inflation, which could put a damper on the recovery if the Fed is forced to raise interest rates. This would send the housing market into further decline so at this point they are extremely reluctant to do so.
So how do you protect yourself from this game of chicken the Fed and the government have put us on?
Learn about the currency markets! Diversify away from the dollar! Because the only way that the dollar is going to “do well” in the near future is if everything else does extremely poorly.
Now that doesn’t sound very safe at all, does it?
To learn more about the currency markets and how you can protect yourself from dollar deterioration and rising inflation, check out our affordable currency course here.
And at the very least be sure to also get yourself set-up for a free, real-time practice account. You owe it to yourself to at least see how easy it is to get started!
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Trade triggered!
By Mike Conlon | August 25, 2009
Well it looks like we didn’t have to wait very long for that possible GBP/USD H&S pattern to trigger a short sale. (See below) We are short this pair and looking for a major push down in the next day or two. Our stop is placed just above 1.66 (above the top of the right hand shoulder) and we’ll be trailing the stop. Check back in to see the progress of this trade.
Tags: dow, gbp, Il, mike, Mike Conlon, pair, short, ssi, trade, USD
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Possible Head and Shoulders Pattern in GBP/USD?
By Mike Conlon | August 24, 2009
A lot of times, especially during the summer slow months, there isn’t enough fundamental news to drive the markets and it’s times like these when the technicals can really take over. Just doing a quick perusal of some charts, I came across this: a possible head and shoulders pattern in GBP/USD. Have a look:
As you can see, this pattern isn’t “perfect”. Yet it’s close enough to merit some observation in my book. I’m going to keep an eye on this pair and will be shorting the breakdown around 1.635 should the pattern complete. Stay tuned!
Tags: blog, charts, conlon, dow, forex, forextrading, fundamental, gbp, lot, market, mike, news, pair, short, technical, time, USD
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When Support becomes Resistance!
By Mike Conlon | June 24, 2009
In my previous note today I mentioned that this morning was down for the Euro. As I was going through my charts I noticed something significant on EUR/USD. Earlier this month, I pointed out a technical pattern on this currency pair known as a “head and shoulders” pattern. The premise of the pattern is that when you draw the neckline it acts as support and if that support is breached it can become a pretty good short trade. Turned out to be a pretty good trade.
Now here we are, a couple of weeks later, and what was formerly short-term support has now become resistance! Let’s have a look… (click charts to enlarge)
As you can see from the charts, the area right around the neckline that had formerly been support has now become resistance and has held on two different occasions. This occurs often and is something that technical traders should be aware of. Short-term traders who like to trade “the range” can enter short positions below resistance with a stop placed just above.
Get ready for the FOMC announcement, just about an hour away!
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Tough morning for the Euro!
By Mike Conlon | June 24, 2009
The Euro is down this morning against all of the major pairs this morning except one, the Swiss franc (CHF), and Sean Hyman explained that situation in his blog yesterday. This morning, the EUR is falling because the OECD, the Organization for Economic Cooperation and Development called for an ECB rate cut to help fight off an estimated 4.8% growth contraction in 2009, and flat growth in 2010.
This comes a day after every member of the ECB committee said that rates were “appropriate” and that they were committed to keeping it unchanged throughout the rest of the year. Whether or not they will be able to maintain this stance is anyone’s guess but this wouldn’t be the first time that the ECB has caved to external pressure.
Stay tuned!
Tags: blog, CHF, Conlon, dow, economic, EUR, Euro, explain, franc, Hyman, Il, Mike, pair, rate, rate cut, Sean, Sean Hyman, Swiss, time
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