A Big Week For The Dollar, This Is How To Profit

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A Big Week For The Dollar, This Is How To Profit

This Is A Big Week For Dollar Traders, Be Ware!

This is going to be a big week for the dollar. The market is expecting an FOMC rate cut in two weeks, this week’s news could reinforce or alter that perception. The Fed Chief Jerome Powell opened the door to a rate cut at his testimony last week but many, including myself, don’t believe it. The reason for the cut would be slowing and sluggish economic growth resulting from the trade war and tariffs. The trade war and tariffs are still in place, their impact on the U.S. economy is limited at least so far as the data is concerned.

While the data does show slowing in the economy it doesn’t show drastic, severe, deep, or troubling amounts of slowing. The NFP report for one shows the economy is still on solid footing if not expanding strongly. This week we’ll get reads on broad swaths of the economy including the Fed’s Beige Book and the risk my friends is that they will be too strong. This week’s calendar includes retail sales, capacity utilization, business inventory, housing starts/permits, the Philly Fed MBOS, consumer confidence, and the Leading Indicators.

The CME’s FedWatch Tool was showing better than 50% chance for two rate cuts, 50 basis points, at the next meeting before the NFP report came out. The NFP reduced the odds of 50 bps to near zero although it has bounced back a little since then. I would not be surprised if this week’s data was solid enough to bring the odds of one cut into question. The market needs to be prepared to be disappointed because the risk is bigger than that. Solid economic data may lead the FOMC to reduce the odds of future rate hikes expected later this year.

Basically, what I’m saying is the dollar could skyrocket on unexpected FOMC hawkishness. Not that the FOMC is going to be hawkish, what they are is going to be less dovish than expected, possibly a lot less dovish than expected. The DXY is currently trading within a range that has dominated prices for over a year. Despite this, the index is in an uptrend that began in early 2020. The index is still wrestling with resistance, hence the trading range, but the uptrend is intact. The weekly charts suggest the index is even now bouncing from key support levels and set to rocket higher.

A move above $97.50 would be bullish. A move above $98.00 would be very bullish. Such a move would confirm the rally and bring targets near the $100 level back into play. I could be wrong. The FOMC could do what the market and Trump both want, a big cut to rates, but I don’t think so. The data doesn’t force the FOMC hand so Powell has time to wait, be patient, and see what happens next. If we get a trade deal he won’t be thinking about cuts, he’ll be thinking about interest rate hikes.

Dollar Collapse Scenarios and How to Protect Yourself

Could You Survive a Dollar Collapse?

Many “experts” warn that the dollar will collapse and lead to global economic turmoil. In this scenario, investors would rush to other currencies to escape further losses. Global trade would seize up because the majority of international contracts demand a dollar payment. Other assets would skyrocket. The worst-hit would be currencies like the euro, yen, and the yuan. Gold prices would soar. Interest rates in the United States would rise as demand for Treasurys fell.

Key Takeaways

  • Although the value of the dollar is declining, the imminence of its collapse may well be far from actualizing.
  • The dollar’s decline in value is attributed to: (1) large debts, (2) excess liquidity and asset bubbles, (3) a huge trade deficit, and (4) less dependence on the dollar as a reserve currency.

Predictions

The authors of “The Coming Collapse of the Dollar and How to Profit from It,” for example, predict a dollar collapse.   But this prognosis is not well substantiated. It also plays on fear. Two authors with great economic credentials wrote this well-known book. Their research into the causes of the current weakness of the U.S. economy is thorough and easy-to-understand. In fact, everyone should read the chapters in Parts One and Two.

The authors’ assertion that the U.S. dollar will collapse because all governments’ currencies collapse is based on only four examples: Ancient Rome, Revolutionary-era France, Weimar Germany, and Argentina. None of those examples are similar to the modern-day U.S. economy.

The authors have not made a well-researched argument to support their conclusion that these conditions will lead to the inevitable collapse of the world’s reserve currency. They state that the dollar is not sustainable as the world currency because it is no longer on the gold standard.

The Declining Value of the U.S. Dollar

It is true that, over the long term, the dollar’s value is declining. Since 2020, the U.S. Dollar Index has fallen by 6%. It could drop further for the following five reasons:

  1. A $22 trillion U.S. federal debt.
  2. Excess liquidity causing inflation or, as is occurring now, asset bubbles.
  3. The unsustainable personal debt of U.S. citizens.
  4. A massive trade deficit.
  5. The strength of emerging market countries, like China. They are becoming less dependent on holding U.S. dollars to keep the value of their currencies low.

All of these forces drive down the value of the dollar.

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How to Hedge to Protect Yourself

Some of the ways to protect yourself from a potential dollar collapse are also good ways to protect your assets from the far more likely dollar decline. First, keep your investments diversified away from the dollar by making sure you hold foreign mutual stock and bond funds and some gold.

The authors of “The Coming Collapse of the Dollar” suggest, like many others, that you hoard gold and other hard assets. Their recommendation to buy gold, precious metals, and shares in gold mining companies is narrow and flies in the face of modern portfolio theory. The authors also concede that one of them, James Turk, could profit from a gold boom since he publishes the “Freemarket Gold and Money Report.”

They also recommend short-selling stocks of companies that a falling dollar will hurt. This is also called timing the market and is not recommended for the average investor.

If the dollar were to utterly collapse, as they predict, it would wreak devastation upon the world’s economy in ways that are unimaginable. Owning gold might be the best way to go, or it might not. A well-diversified portfolio and constant attention to key economic indicators are a better way to protect your finances than putting all your eggs in one basket.

How should you protect yourself from the global economic turmoil? This high level of uncertainty could occur from any sudden shift in the world economy. The best defense is to be mobile. That means keeping your assets liquid so that you can shift them quickly. Don’t tie a lot of money up in real estate, which could tie you down. It’s also difficult to sell when the real estate market goes south. You could even lose money if you didn’t get renters.

Invest in yourself and your knowledge. Stay on top of the global economy. Understand investing. And it’s never a bad idea to keep your passport updated, just in case! You can be safe in a dollar collapse if you also follow five steps that protect you from an economic crisis.

A Big Week for the Dollar and Oil

A Big Week for the Dollar and Oil

This article is produced by Learning Markets, LLC. The materials presented are being provided to you for educational purposes only. The content was created and is being presented by employees or representatives of Learning Markets, LLC. The information presented or discussed is not a recommendation or an offer of, or solicitation of an offer by Learning Markets or its affiliates to buy, sell or hold any security or other financial product or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances and your investment objectives. Learning Markets and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.

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