The Beginning of a Dollar Crash?

I live in Asia and travel the continent quite a bit.

So I’ve been a big fan of the strong dollar in recent years.

The greenback has gone a long way in this part of the world.

Flights… hotels… restaurants…

It seems like everything’s been on sale.

But now it looks like the party might be over.

The greenback is now in a downtrend.

Here are a few ways to play it for profit…

Streams of Useless Data

First, let’s look at some typical misinformation campaigns…

Here are recent headlines from the chattering media class:

4/5: Dollar Rises as Investors Anticipate U.S. Data

4/6: Dollar Falls on Fed Minutes

4/13: Dollar Climbs Before Data Forecast

4/15: Dollar Falls on Lackluster U.S. Data

4/21: Dollar Rises After Solid U.S. Data

4/25: Dollar Sinks After Q1 Growth Takes Another Hit

You got that?

Now, ready to pull the trigger on a moneymaking trade with that advice? Good luck!

(You’ll need it.)

You see, there’s absolutely nothing there that can help you reliably make money trading the dollar.

You can’t make a greenback trade by keeping tabs on frenetic, emotional seesawing of media blather.

Trust the Trend

This all reminds me of 2008-2009, when everyone said the dollar would go to zero.

Of course, that turned out to be the bottom of the U.S. dollar, as you can see in the chart of the dollar index below.


Note: The U.S. Dollar Index measures the performance of the dollar against six major currencies.

Don’t get me wrong.

There are plenty of things wrong with our economy.

And at some point the dollar may indeed crash. But nobody can predict the exact timing if it does. That’s why we let the trend guide us.

And right now, after a big rally, the dollar appears to be entering a downtrend.

Why do I say “appears”?

Because a signal on the downside doesn’t mean I know how low this move might go.

That’s not the point. The signal says down. I trust my trend following system. And we have our stops in place for peace of mind.

Unemotional, disciplined trading is the key to success.

So, how can you possibly profit from dollar weakness?

Here are some points to keep in mind…

Simple, Low-Cost Ways to Play the Dollar

When the U.S. dollar is weaker, it takes more dollars to purchase any commodities priced in greenbacks, like gold, silver, corn, soybeans, wheat and oil.

That means those commodities tend to move in the opposite direction of the dollar.

I’ve already mentioned that gold and silver are in an uptrend. But precious metals are not the only way to profit from a weak dollar.

A weak dollar is also usually good for emerging markets…

See, emerging markets were one of the biggest losers of a strong dollar in recent years.

That’s because many businesses in emerging countries have debt denominated in U.S. dollars.

When the dollar is strong, it’s harder for them to pay that debt.

So if the dollar continues in a downtrend, we could see a recovery in emerging markets.

Logically, a weak dollar also provides incentive for investors to sell U.S assets and chase growth in emerging markets in non-dollar assets.

That’s the fundamental view of what can happen.

But we rely on trend following signals to tell us what to do.

For example, some major emerging markets, such as Brazil (EWZ) and Russia (RSX) are already in an uptrend, according to my system.

One potential downside for me?

If the dollar continues to decline, my travel is going to get more expensive.

But I’ll have plenty of opportunities to profit from these new trends too.

It’s always a balancing act. One side goes up, the other side goes down.

That’s the trend following way.

Ride the bucking bronco for profits. And forget predictions.

I always want your feedback. Please send your comments to And make sure they’re uncensored.


Michael Covel
for The Daily Reckoning

The Daily Reckoning