Trade Currency Options To Profit From Trends In The US Dollar
The Dynamic Wealth Report
August 20, 2008
Is The US Dollar Set To Fall?
by Brian T Mikes, Managing Editor
Two years ago I was sitting in the San Francisco airport. I was about to
start an extended road show with a client of mine. We’d be raising close
to $50 million. We had meetings all over the US, Canada, and in Europe.
We’d be on the road a little more than 2 weeks, and this was crunch
time.
As always I started thinking ahead. Making sure flights were arranged,
hotels booked, car services notified, clients contacted, accounts set
up, documents delivered. The details were important . . . sometimes a
little detail meant the difference between a good meeting and a great
meeting.
Then I started thinking about London.
I’d need 4 different currencies on this trip, maybe five. US Dollars for
our leg through New York and Boston. Canadian Dollars for expenses in
Vancouver and Toronto. British Pounds for London. Euros for Paris. And
if everything went well . . . we’d have two meetings in Switzerland
which would require Swiss Francs.
Later that week I landed in London Heathrow airport. The first thing I
did was take my US Dollars to an exchange window where I gathered all
the other currencies I’d need.
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Exchanges like this are common in the global currency markets. More
than $2 trillion dollars are exchanged every day. To put it in
perspective, that’s more business than all of the stock markets in the
world combined. Transactions like these happen all over the world
millions of times every day. Some are big and some are small, but all of
them follow along using ever-changing exchange rates.
The US Dollar is the closest thing we have to a global currency. We have
the largest economy in the world, and our greenbacks are floating the
world over. Our currency’s so popular many countries fix their exchange
rates with ours.
In March, it was a dire time for the US Dollar. The dollar had been falling for
several years straight. Every tick down caused the demand for
commodities to go up. I don’t have room to explain why, but trust me. As
the dollar’s value fell, the world pushed more of their investments into
commodities.
Oil prices were at record levels.
US consumers were paying more than $3.50 for a gallon of gas, and it was
only going to get worse. Prices were going up and up, and inflation was
taking hold. It couldn’t be happening at a worse time. The collapse of
the US housing market was dragging down financial institutions and
banks. The economy was on the verge of a major implosion.
Then Bear Stearns went insolvent.
The firm was quickly married off to JP Morgan, averting certain
disaster. That move alone saved the US markets from meltdown. But the
damage was done. The bad news pushed the US Dollar lower. Every tick
down in the US Dollar seemed to drive oil prices higher. Higher oil
drove inflation fears. And with the economy stagnant . . . we risked
a return of
stagflation.
In May, it looked like we’d hit bottom on the dollar. Horrible news out
of the economy included surging commodity prices and falling consumer
confidence. Yet the dollar held its ground . . . a change few observed. If you were a subscriber to the
Currency Options Insider, you’d have
read about the change. I sent out a note in my Weekly Update indicating
we’d hit a bottom.
Global issues started getting front page press.
In mid-summer, some of the minor currencies started struggling. The Bank
of Vietnam devalued their currency - the “Dong” - by 2%. They also raised
interest rates to 14% in an effort to curb inflation. In the last year,
Vietnam had seen prices rise more than 25% - and you thought it was bad
here in the US.
Then came news from India.
The Central Bank of India started battling inflation which was out of
control. They recently increased interest rates over 8% in an effort to
slow inflation.
In June, the US Dollar started strengthening.
The Federal Reserve met and held interest rates steady. This was the
first time in 9 months that they left rates unchanged. However, they
continued their tough talk on inflation. They noted food and fuel prices
were driving inflation concerns here in the US.
So enough economic news . . . what’s this mean?
I learned two important things. First, by holding rates stable the Fed
indicated the economy was still growing. It also meant the liquidity
actions were helping ease the credit crunch. The other key point was
inflation is a key issue.
This was a good news / bad news event.
Good news for the US Dollar as the natural antidote to inflation is rate
increases. Bad news for consumers as we’ll have to see a strong and
continued thrust of inflation before the Fed will act. With the
Fed now focused on inflation and the economy still shaky but stablizing, the US
Dollar started a rally.
Over the last two weeks we’ve seen a rally of more than 10% in the US
Dollar . . . something that I’m expecting to continue though the end of
the year.
In fact, as part of my Currency Options Insider service, I’m releasing a
trade this Friday on a major world currency designed to take advantage
of this situation. I truly believe this option has the chance to
double
or triple your money in the next few weeks. To learn more,
click here…
• Cattle (over $1 per pound)
The rising cost of grain is finally impacting the live cattle market. In
the last few months we’ve seen live cattle prices increase more than
10%. I’m expecting this trend to continue for a while. Eat your steak now
. . . we’ll all be vegetarians soon.
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