From the Desk of Ian Culley @IanCulley
The forex and futures markets will provide bountiful ways to trade a weakening dollar.
Unfortunately, some of our initial attempts to capitalize on dollar weakness have fallen flat.
We’re not surprised – especially since market conditions remain challenging. But that won’t deter us from moving forward and finding the best trade setups.
As always, a viable trade comes down to two critical components: a well-defined risk level and a risk/reward profile heavily skewed in our favor.
And, of course, you know how much we like relative strength.
That brings us to a vehicle that challenges the definition of “currency.”
That’s gold.
Check out this multi-pane chart of major currencies with gold in the lower pane:
Aside from the US dollar, international currencies have endured a rough year.
The pound retested its all-time lows. The euro fell below parity for the first time in almost twenty years. And the yen found its way back to levels not seen since the Asian financial crisis in 1998.
But what about gold?
Throughout endless negative press, gold has remained range-bound. That’s more than we can say for the yen, the euro, the pound, the Swiss franc, the Australian or Canadian dollars.
In fact, it’s the only currency trading above its early 2020 highs preceding the pandemic sell-off.
Talk about relative strength! Gold has certainly shown impressive relative strength compared to global currencies.
To be clear, I’m not arguing for gold as a store of value, or whether it’s a currency or a commodity. (I think it’s both.)
Instead, I’m only interested in taking advantage of a falling US dollar. And one thing I’ve learned is that you always want to own the strongest and short the weakest – regardless of the asset class.
The forex market will undoubtedly provide ample opportunities to play a weakening dollar in the coming weeks and months. The pound and the euro come to mind, as both have reclaimed critical levels of former support.
But perhaps our best bet is to simply buy gold.
Stay tuned!
Thanks for reading.
As always, let us know what you think.
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Allstarcharts Team
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