Another US Dollar Rally In The Works?

| May 21, 2015 | 0 Comments

US Dollar RallyWatch For Another US Dollar Rally…

As you may know, the US Dollar underwent a hefty selloff the past few weeks.  Once the US Dollar index hit 100 in early April, sellers entered the market in force.

A multi-week bearish trend took the currency down to the 93 area as of a few days ago.

Thanks to this downturn, overall commodity performance improved in late April and early May.  Case in point, WTI crude rallied from $50 a barrel all the way up to $62.50- a 25% upturn.

But now we may see a reversal of this bearish dollar trend…

A strong US Dollar rally the past few days leads me to believe the world’s reserve currency may take another run at the 100 level.

Take a look…

US Dollar Rally, a chart of the US #Dollar

 

As you can see, the greenback is rising strongly this week.  The dollar index is up 2.5% thus far this week and may add more in coming days.  Given the situation, we could see further commodity weakness in the near future. 

What’s causing this sudden dollar resurgence?

Recent statements from the European Central Bank (ECB) suggest stimulus measures in the beleaguered economy will be strengthened soon.  The news has the euro diving towards lows set in early April.

But that’s just the start of the trouble for the euro…

There’s increasing doubt Greece will survive in the European monetary union much longer.  The debt-laden country is scheduled to make a payment to the International Monetary Fund (IMF) on June 5th.  But Greek politicians are suggesting that payment won’t happen unless the country’s creditors agree to renegotiate.

It’s a tenuous situation.  And given the growing uncertainty, I wouldn’t be one bit surprised to see the euro weaken further in coming weeks.  In fact, there’s a distinct possibility the troubled currency retests the lows set early last month.

Of course, additional downside for the euro equates to upside for the greenback…

Capitalize Off A Potential US Dollar Rally…

With this European economic storm brewing in the background, a bullish position in the US Dollar offers a solid risk/reward right now.

How do you play it?

My preferred way is a simple position in the PowerShares DB US Dollar Bullish $UUP.  The Deutsche Bank sponsored ETN rises right along with the US Dollar index and has an affordable expense ratio of 0.80%.

And keep in mind…

UUP also has a rather robust options chain.  As a result, you can use call options to capture profits should the US Dollar continue higher.

If you’re not familiar with options, be sure to check out my series on options basics.  You’ll find the first article in the series here. 

Bottom line… 

If the IMF, ECB, and Greek politicians aren’t careful, their debt debacle may come to a disastrous conclusion.  Being long the US Dollar is a great way to potentially profit from the situation. 

Until Next Time,

Justin Bennett

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.

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Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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