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Cover Those Shorts in the Dollar

The stage is now set for the dollar. With the US 20 months into a recession, it’s just a matter of time before the Feds pull us back from zero interest rates. With the ECB late to the funeral, European Central Bank president, Jean-Claude Trichet, last week reaffirmed his commitment to keep their benchmark rate at 1% to restore the economy. There’s your trade. The next move in the euro/dollar spread will be in favor of the greenback, as the US will be the first out of recession. On top of that, you can pile a fading US stock market and a back off in commodity prices, which are also dollar positive. You can expect the euro to trade down to the low $1.30s. Mind you, this is still a counter trend trade, which I generally try to avoid. It’s a one night stand, not a marriage. Anyone reading the National Enquirer knows the dollar is sick, and even my cleaning lady has a major position in the futures. Thus, the street is overdue for a spanking, the inevitable outcome when there are too many bets on one side of the table. I still think it will cost two Euros to buy a buck sometime in the foreseeable future. For those hardy souls willing to scoop up some pennies in front of a steam roller, look at the 200% short euro ETF (NYSEARCA:DRR), which has backed off 34% from $63 to $42 since November.