The Dollar’s Expensive – Excellent Forex Opportunity
With the deleveraging of the financial markets the dollar has soared in value against other currencies back into the same trend that occurs every few years. This is setting up an excellent forex trade going into the next few years with GBPUSD being one of the best trades. Short, short, short the dollar and long everything else.
The huge rise in the value of the dollar is unfounded, investors are fearful that deleveraging is deflation when in fact the amount of money in reserve has not changed but has actually increased by a horrifying 70% in 2008 alone. Banks now have more money in reserve than ever, and when the economic cycle picks up yet again this money will be lent, spent, and multiplied through a fractional reserve system.
As investors we can use this knowledge to rack up obscene profits. Today the GBPUSD trades for an extremely low price even as the fundamentals in Great Britain are far better than in the US.
Considering simply the debt to GDP ratio, the United States is 3 times more indebted than Great Britain. The future generations of the US both born and unborn are liable for Trillions of dollars in national debts and as much as $60 Trillion in social security and medicare. This is no time to be long the dollar, no matter how many margin calls or popped bubbles.
The paper losses in the financial markets have already been monetized by treasury issues and bank bailouts. The paper losses of US financial institutions are now realized by the US government who has purchased them at well above true market value. These are locked in and cannot be made profitable until a huge correction in real estate prices.
The fundamentals and technicals are certainly in favor of currencies non USD. But here is a chart of the long term GBPUSD pair:
At this level the GBPUSD is incredibly cheap considering the functions of the Congress and TARP to increase money supply. At this point it would be foolish to be long the dollar considering its current strength. The dollar and Treasuries are hot, but only for so long.
But looking at the technicals GBPUSD just struck a very important trendline. Though the line has been broken before it has never been broken for long. The Monthly RSI shows extreme oversold levels with a current value of 15, 30 is considered oversold.
Its time to buy GBPUSD and hold on for the long haul. This trade alone has the ability to generate extreme amounts of wealth with the leverage granted in the forex market. Unfortunately there is no good ETF alternative to the GBPUSD pair. GBB trades on the stock markets but volume is far too light to trade. Consider opening a no minimum forex account at Oanda.com.
