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RoboStreet – September 5, 2019
King Dollar Signaling Big Rally Ahead
One area of the global markets that doesn’t get a lot of press is the world of currencies and exchange rates. While the topic is much less sexy than stories surrounding specific companies and what’s hot in certain sectors, currency trading is many-fold larger than both the bond and stock markets. Currency trading is a huge business for the biggest U.S. and foreign banks. On any given day, the 200+ banks that comprise the New York foreign exchange market will trade between $5.1 trillion worth of dollars, yen, euros and other foreign currencies versus an average of $84 billion for equities worldwide.
Unlike stock and bond markets that have fixed hours of operation, the Forex market managed by global foreign exchange trading rooms operates 24 hours a day, five days per week. It’s all the world’s money in motion. Massive quantitative easing around the world has boosted the size of the currency market and with over 100 different kinds of official currencies in the world, the business of forex trading has grown rapidly.
“I’m investing my own money in each and every stock as my AI platform identifies.”And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
Traders often refer to the U.S. greenback as “king dollar” in the current market for a few reasons. First, the U.S. dollar makes up a full 85% of all forex trading volume and serves as the world’s reserve currency. Banks and central banks depend on absolute liquidity when conducting fiscal operations and the dollar trades like water. Secondly, the vast majority of all transactions in crude oil are consummated in dollars while also being the universal pricing mechanism for many of the leading global commodities.
After the Federal Reserve ceased QE in October 2014 after accumulating $4.5 trillion of new assets on their balance sheet, the dollar rallied sharply per the chart below.
The U.S. Dollar Index is a good barometer against which traders transact and hedge relative to a basket of other leading currencies. The index is weighted in order of:
The trade war between the U.S. and China has had material implications for currency traders. China has pegged the yuan above 7:1 to the dollar, an 11-year low to combat the effects of higher tariffs. After a period of relative stability from 2015-early 2018, China has manipulated its currency lower, again to fight the cost of tariffs, but also at the expense of capital flight out of China. It’s a two-edged sword that can easily disrupt their financial markets if the yuan depreciates too much.
Deflation and economic contraction in Europe are also causing the Euro to lose value against the dollar. Less than a year ago, the Euro was trading at 1.13: 1 to the dollar and today the exchange rate is 1.05:1 and looking weak as the European Central Bank continues to print Euros in their ongoing QE efforts to resuscitate that economy and avert a recession. Here too, because of central bank manipulation, holders of Chinese yuan are aggressively converting to dollars.
Lastly, and most importantly, the dollar is in a bullish trend because economic fundamentals are solid. U.S. GDP is running at an annual rate of 2.0%, inflation is tame, energy prices are steady, borrowing costs are cheap, employment is robust and consumer confidence is at or near historic highs. Consumer spending accounts for roughly 70% of GDP, so as the consumer goes, so goes the economy and the dollar.
Trading the dollar can be done easily with the Invesco DB US Dollar Index Bullish Fund ETF (UUP). The ETF is highly correlated to the US Dollar Index (DXY) and offers investors a liquid instrument to trade either shares or options on the dollar. Average daily volume is about 750K shares traded and is one that I will be working within our RoboInvestor Portfolio.
With the use of my AI-driven technical tools, we can time when to buy and sell the dollar just like a professional forex trader. The Tradespoon Seasonal Chart shows the dollar is overbought on a short-term basis (20 days) and bullish further out. It’s my full intention to be long the dollar on pullbacks and selling when my indicators flash to do so. Seeing the strong tailwinds for further gains in the dollar, we want to have this asset at work for us until the bullish conditions noted the change.
My RoboInvestor advisory service has been very adroit about trading assets outside the stock market. RoboInvestor subscribers have booked profits from trading Treasuries, gold, the Euro, the VIX and now we’ll be trading the dollar. RoboInvestor has an 87.64%-win rate for all closed trades – something no human could do without the power of an always learning AI platform. Sign up for RoboInvestor today and start investing smarter tomorrow. Act now and put AI to work in your portfolio.
“I’m investing my own money in each and every stock as my AI platform identifies.”And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
*Please note: RoboStreet is part of your free subscription service. It is not included in any paid Tradespoon subscription service. Vlad Karpel only trades his own personal money in paid subscription services. If you are a paid subscriber, please review your Premium Member Picks, ActiveTrader, MonthlyTrader, or RoboInvestor recommendations. If you are interested in receiving Vlad’s personal picks, please click here.
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