The Adens' Top Currency Bets
10/16/2017 12:30 pm EST
The U.S. dollar has been falling all year. The move has been almost straight down and the dollar remains bearish, suggests Mary Anne and Pamela Aden, editors of The Aden Forecast.
Following such a steep decline, any market becomes oversold. This means it’s dropped too far and it’s due for an upward rebound. That’s what’s happening now and it’s normal.
The dollar’s leading indicator is bottoming at a too low area and it’s poised to head higher. This will likely coincide with a further rebound rise in the dollar index, but it will remain bearish even if it rises to as high as 97.60, its 65 week moving average.
And when once this rebound rise is over, all signals point to a resumption of the dollar’s major bear market decline. Currently, we recommend selling the U.S. Dollar Bearish ETF (UDN), but this may only be temporary.
Once the dollar’s rebound is near an end, we’ll likely buy UDN again and take advantage of its strength as the dollar falls into the next phase of its bear market. Remember, a weak dollar provides benefits for trade and the economy. Exports are on the rise and we don’t think the powers-that-be want a strong dollar.
Nevertheless, the dollar did its own thing and it bounced up due to several factors this month. Most influential was the Fed’s statement that they’re going to raise interest rates, one more time this year and three times next year, thanks to a strong and robust economy.
And even though Yellen said this “is not set in stone,” it was good enough for the dollar bulls. They loved the idea of higher interest rates, and drove the price higher.
Plans for a tax overhaul also boosted the dollar, and so did the ongoing tensions between the U.S. and North Korea. As the war of words intensified, the dollar emerged as a safe haven. Overall, however, it wasn’t so much that the dollar was strong, but the euro encountered downward pressure. And as the euro declined, the dollar rose. Here’s why...
First was the German election. Even though Angela Merkel won a fourth term as German Chancellor, making her one of the longest and most powerful European leaders, it wasn’t all smooth sailing. Merkel is having trouble putting together a coalition government, creating uncertainty, and that gave the euro the jitters.
Also weighing on the euro were events in Catalonia. The Catalans voted for independence and this has been coming down the pipeline for a long time. But the current situation has led to turmoil and protests between the Catalans and the government of Spain, who does not recognize the vote for independence.
Our dear friend and colleague Chuck Butler calls the euro “the big dog.” That’s mainly because the euro tends to lead the other currencies. In other words, if the euro moves up, most of the other currencies will too. Some will rise more than others but the major trends tend to stay in synch.
These trends are all on the rise and bullish. The Japanese yen is the big exception, primarily because North Korean missiles have been flying overhead. That makes the Japanese and currency investors understandably nervous, so the yen has been stalling.
Our favorite currency continues to be the euro. Once this downward correction is over, we’re fairly certain that euro will keep surging upward.
That being the case, we still advise keeping about half of your cash in the euro and/or the CurrencyShares Euro Trust ETF (FXE). We also continue to recommend holding the CurrencyShares Canadian ETF (FXC) and the CurrencyShares Australian ETF (FXA).