Since the Euro's existence, it has been debated by analysts that the U.S. Dollar is losing its place as the only reserve currency in the world. In other words, the age of U.S. Dollar hegemony was coming to an end. Central Banks such as Bank of Russia have started diversifying into reserve currencies other than the U.S. Dollar, most recently the Australian Dollar. This is the effect of a global sentiment that the U.S. Dollar outlook is extremely bearish. A number of factors including low interest rates, a weakening U.S. economy, a perceived shift to emerging markets by multinational corporations, a rising China and India, and other factors, make the U.S. Dollar look weak-- especially with new choices such as the Euro (NYSEARCA:FXE), Chinese Renmimbi, and others.
However, global circumstances have changed. Notably, Japan has been decimated by a nuclear incident, the Swiss National Bank has pegged the Swiss Franc, and the eurozone crisis threatens the existence of the Euro entirely. While regions like the Australian Dollar have benefited greatly, their economy depends heavily on China, which is slowing. Crisis in other regions such as the UK (Libor scandal) do not bode well as alternatives. While the problems with the U.S. Dollar still exist and have become worse, they have deteriorated less quickly than forces in other currency regions. For the time being, the U.S. Dollar seems to be-- in political parlance-- the dog with the least fleas.
US Dollar strong 2012 Outlook
Analysts from Citi, writers from Seeking Alpha, and many others agree that the outlook for the U.S. Dollar in the near term (next several quarters) is bullish. While there isn't any positive expectations for the U.S. economy or U.S. Dollar, there isn't any perceived extremely negative news. We are one news announcement away from a potential Euro collapse, if Greece decides to exit.
A dollar bullish currency ETF called Dollar Bullish (NYSEARCA:UUP) can be purchased as a stock. Traders who agree with this view of the U.S. Dollar should purchase Dollar Bullish. Futures traders may want to look into the US Dollar Index (DXY).
Since this is a long term play, traders may want to buy on dips or wait for a week where the US Dollar is down, such as this week.
Also consider that as a long term play, this is not something to be traded day by day. Currencies generally fluctuate intraday and intraweek according to real money flows and news, but long term trends form when based on fundamentals, such as the situation with a bearish Euro outlook.
Elite E Services, Inc. is a Forex CTA. CTAs (Commodity Trading Advisors) are firm designations provided by the CFTC. CTAs have a Limited Power of Attorney on accounts to trade, they do not accept funds directly (funds are held at FDMs, RFEDs, and FCMs). CTAs have a license to trade under the LPOA any type of offered commodity on an exchange in the futures markets. As securities are offered as futures, it is possible for CTAs to trade nearly all available financial products, although they usually trade them as a future.
However there is now another possibility for CTAs. Many CTAs that have traded Forex for a long time but were not required to register with the NFA until the recent Dodd-Frank act, are registered as Forex CTAs. Forex CTAs pay higher fees, and typically have relationships with currency specific institutions such as RFEDs, who offer only Forex products (not futures). However, Forex CTAs are not prevented from trading in futures, but most choose not to.
Forex CTAs offer managed accounts programs no different than futures trading CTAs. From the perspective of the investor, it is similar to other types of programs in appearance; there is a required disclosure document including a performance capsule, and it is effectively a managed investment. The fact that the CTA is trading in Forex or Corn is irrelevant from the perspective of the investor, aside from his deeper understanding of what the CTA is actually doing (a return is a return).
As a managed investment, Forex CTAs typically do not make currency recommendations as a business, although they will usually have an internal analyst for their own use. They typically have a strategy that may or may not depend on the direction of the markets. For example a Forex CTA may have a strategy based on swing trading, which would not be much different from a stock or futures strategy. In this sense, Forex is simply just another product to trade for a profit. The managed program is speculating in the markets for a profit, not taking a fundamental long term position in a currency.
ETF vs. keeping your funds in dollars
If you are a U.S. based investor, it is possible to invest in the dollar even though most of your assets are already in dollars. By keeping your funds in USD at your bank, you will achieve a greater purchasing power with other currencies as the US Dollar increases. However it will not be reflected as a profit in your account. To do this, one must open a Forex trading account or trade the currency through ETFs. An ETF trades like a stock, is listed on an exchange, and available to any investor with a stock account. Click here to see a list of Currency ETFs provided by Seeking Alpha.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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The risk of loss in trading foreign exchange markets, also known as cash foreign currencies, or the FOREX markets, can be substantial.