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Greg Group
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MBA with extensive background in strategy and investing. Founder of investing company specializing in advanced option strategies and monthly income generation through covered calls and other investments.
My company:
Get Rich - Stay Rich
My blog:
Get Rich - Stay Rich: Investing for Monthly Income
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Get Rich - Stay Rich: Investing for Monthly Income
  • Buy the USD and Sell the Euro in 2010 0 comments
    Dec 21, 2009 9:46 AM | about stocks: USD, UUP, EUO
    The bears continue to say the U.S. Dollar will crash.  And they may be right someday.  But when you look at 2010, the U.S. dollar will not crash.  Why? There are too many buyers of U.S. Treasuries so this will keep interest rates low throughout 2010.  China depends on the US to ship their cheap goods to the largest consumer market in the world.  If China stops buying US treasuries, the demand for their goods decreases and they have an increase in unemployment and currency rates in China.  The fact that China will continue to buy US Dollars to manage their currency will keep the Dollar from crashing for now.
     
    China is not alone as other Asian countries are managing their currencies through the Dollar as well.  The Dollar will continue to lose ground against gold.  But interest rates will not dramatically increase in the first 6 months of 2010 as foreign buying will keep rates low.  There is no indication of inflation until the U.S. banks start to lend out the stimulus money on their balance sheets.  This will not happen anytime soon as the banks must keep their capital rates high to solidify their financial status.
     
    The Euro is the currency that is in a more difficult situation than the Dollar.  With the problem of Greece needing to be bailed out, the Euro will be challenged.  After Greece, Portugal, Italy and Spain may need to be bailed out.  This may lead to instability of the Euro as speculators will jump on board to drive down the Euro even farther.  Regardless of the outcome, the Euro will be fraught with weakness and uncertainty.
     
    What is the trade here.  There are two ways to play this scenario: short the Euro and long the U.S. dollar.  You can buy the Proshares Ultra Short Euro Fund (EUO).  This investment will seek to replicate, net of expenses, twice the inverse performance of the EUR/USD daily price change.The Euro is down about 5% in the last three weeks.  While I believe Europe will have a terrible year, I think the U.S. will be strong as the recovery will continue. 
     
    If you agree that the Dollar will strengthen, then you can buy the Proshares U.S. Dollar Bullish Index (UUP).  This investment seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Long US Dollar Futures index. The index is comprised solely of long futures contracts. The futures contract is designed to replicate the performance of being long the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.
     
    Currency investing has an added level of risk as many events can impact their directions immediately as they trade around the clock.  So be sure you use a trailing stop if the trade begins to go against you.   


    Disclosure: No positions in listed ETFs
    Stocks: USD, UUP, EUO
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