A simple way to hedge a big drop in the dollar
From Justin Spittler, Editor, Casey Daily Dispatch:
The U.S. dollar just had its worst year in 14 years.
Last year, the U.S. Dollar Index (DXY) fell 10%. This index tracks the dollar’s performance against a basket of currencies.
Now, I realize this might not sound like a big deal. But it was the index’s worst annual performance since 2003.
A 10% decline is basically the equivalent of a crash for a major currency like the dollar.
It hasn’t shown any signs of recovering yet, either. This year, the dollar’s already down another 2%… and it’s looking like it will keep falling.
I’ll explain why in a second. But you should first understand something important.
The dollar is the world’s most important currency…
When it moves, stocks, bonds, and every other financial asset on the planet follows it. And a major move like the one we’re seeing now can rip across the global financial system like a tsunami.
In short, you cannot ignore the dollar.
The good news is that you can turn the plummeting dollar into fat profits. I’ll show you how at the end of today’s Dispatch. But let’s start by looking at what’s happening…
Take a close look at the chart below…
It’s one of the most important charts in the world.
It shows the performance of DXY since the start of 2013.
You can see DXY has been falling since late 2016. It’s now at a three-year low.
More importantly, it just broke a major support level. This level is a giant air pocket.
In other words, the dollar could go into free fall from here.
And there’s a good chance that it will happen…
That’s because the U.S economy is weak…
You might find this hard to believe. After all, the U.S. economy is growing twice as fast as it was a year ago. And the unemployment rate is at its lowest level in 17 years.
But I don’t mean weak in an absolute sense. I mean relatively weak.
You see, the European Union (EU) just had its best year of economic growth in 10 years.
Japan, on the other hand, is headed for its longest economic expansion since 2001.
Then there are emerging markets (EM). These are countries that are on their way to becoming developed nations like the United States. And right now, major EMs like China and India are growing more than twice as fast as the U.S.
In short, the U.S. economy is not doing nearly as well as the other major economies around the world.
Because of this, traders are moving abroad…
They’re betting on foreign currencies.
The evidence is everywhere. Just look at this chart. It shows the performance of the CurrencyShares Euro ETF (FXE). This fund is designed to track the euro, the official currency of the EU.
You can see the euro’s up 17% over the past year. It also just broke through resistance that’s been in place since last August.
This is highly bullish for the euro. That’s because resistance levels are where bears and bulls duke it out. If the resistance is broken, it means the bulls have won the battle. That asset will likely keep rising.
That’s not good for the dollar.
You see, the currency market is a zero-sum game…
When one currency strengthens, another must weaken.
In short, a strong euro means a weak U.S. dollar. Not only that, the euro is by far the biggest component in DXY. It makes up 58% of the index.
That’s not the only reason you should be worried about the dollar, either.
Traders are also betting on a stronger Japanese yen…
You can see what I mean below.
This chart shows the performance of the CurrencyShares Japanese Yen ETF (FXY). This fund tracks the Japanese yen against a basket of currencies.
Two things jump off the chart here. Number one, FXY has put in a bottom at just over $84. Number two, FXY just broke out of a downward wedge.
This suggests that the yen is in the early stages of a new uptrend. And that, too, is not good for the dollar.
This is because the yen is the second-largest component in DXY. It makes up 14% of the index.
And like the euro, a stronger yen makes for a weaker U.S. dollar.
This is happening because money goes where it’s treated best. And right now, traders see better opportunities outside the States.
Unless this changes, the U.S. dollar will continue to struggle.
That’s bad news for everyday Americans…
It means the money in their pockets won’t go as far.
The good news is that you can hedge yourself against a weak dollar. One way to do this is by going “long” foreign currencies like the yen or euro.
There’s also another way to profit from the weak dollar, which I’ll share on Monday… one with massive upside.
P.S. As I’ve been telling my readers over the past few months, the best way to play the falling dollar is by investing in the best commodities. In fact, this is doug’s biggest speculation right now…and could very well end up being the biggest of his career.
Doug believes we’re going to see some incredible moves in commodities in the next few years. He says this is the moment we’ve all been waiting for…and “If I could call your broker and place this trade for you myself, I would.” See why he’s so bullish on commodities right here.