The Dollar Faces Its Most Important Test Since 2002

The dollar is facing its biggest test in 16 years.

As you can see below, right now the dollar is barely hanging onto its seven-year uptrend line. The U.S. Dollar Index is only one point away from breaking the trend line at 88.20.

This is a critical level.

That’s because the dollar’s next move will have a serious effect on your wealth over the next year.

Fortunately, there are specific ways to profit from this important test.

As I’ll show you in today’s essay, we’ll be fully prepared to take advantage—no matter which direction the dollar moves from here.

But first, let me explain why we’re following the dollar in the first place…

Recommended Link

Tiny Company on the verge of a price breakout… Tiny company has a rare technology that the U.S. military CANNOT do without. A single memo signed by Donald Trump could thrust this tiny company into the spotlight after March 2018. It could bolt for a potential 1,127% climb. But you can get in today for less than $3. Before the next price surge, I suggest you…  Grab the ticker and place an urgent order

—

The Dollar Is the Price of Everything

It might sound like common sense, but the value of the dollar directly affects the price we pay for everything.

When the dollar weakens, we end up paying more for everything. Our dollars don’t go as far… from the groceries we eat, to the gas we put in our cars, to the stocks in our portfolio.

Despite that, many investors overlook the value of the dollar in their investing plans.

And worse, they don’t take into account how the dollar affects the profits of the companies they invest in.

In short, the dollar’s performance directly affects your portfolio—and ignoring it could cost you thousands.

Now, let’s take a closer look at the dollar’s test…

Recommended Link

Does this Petri Dish Hold the Cure to Cancer? We may find out as soon as February 27th. On that date results of a year-long trial will be announced. If results are positive, as we expect, this industry could easily grow 35,000%. To reap the biggest gains you MUST be in before the announcement.  Find out how here

—

The Current Test

To understand why the dollar’s next move is so important, we need to go back to 2002.

This was the last time the dollar failed this test. And, well, just look at what happened…

As you can see, the dollar lost 40% of its value from peak to trough. A bear market that lasted almost nine years followed.

The signal that tipped off investors to the start of the dollar bear market was a broken uptrend. The uptrend had lasted seven years until it was swiftly cut through in mid-2002.

Now the dollar is in freefall again. We first pointed this out in August when the dollar was only down 10%. It’s fallen another 5% since.

And now, as I mentioned above, the dollar is only one point away from breaking this trend line.

Now, let’s look at the two different scenarios that could follow…

Recommended Link

In February 2018, The Next Evolution of Bitcoin is Going to Mint a New Class of Millionaires – But 99% of People Have No Idea What’s About To Happen…   Click here for the full story

—

Scenario 1—The Dollar Breaks the Trend Line

Over the last few months, the dollar has continued to fall relative to other currencies. One reason is because the other currencies Wall Street uses to measure the value of the dollar are strengthening. Europe and Japan are both stopping their easy-money policies, which is bullish for their currencies. And China is making moves to strengthen the yuan.

And the federal deficit is projected to widen… As I told you yesterday, experts predict the deficit could grow by $1 trillion next year. That means a lot of money is getting printed… and is forcing the value of the dollar down.

If the dollar breaks the trend line, it will probably go down another 11%—a large move for a currency.

What to do: If the dollar breaks this trend, the play is to stick to what we told you in August. Buy international companies that get a lot of their profits from overseas. The SPDR S&P 500 ETF (SPY) is one way to do this. Companies in the S&P 500 get 47% of their profits from overseas. Another way to profit from a falling dollar is to buy commodities and building materials. If the dollar weakens, you’re really going to want to own the ETF I mentioned yesterday—the Materials Select Sector SPDR ETF (XLB). Companies in this fund will do well no matter what the dollar does, but will do that much better if the dollar tanks.

Now, here’s what to do if the dollar passes this test and stays above the trend line…

Scenario 2—The Dollar Passes the Test

If the U.S. Dollar Index passes this test, it should bounce 5%–7% in the next year.

Now, there are lots of fundamental reasons for the dollar to go higher. The economy is growing very quickly—the Federal Reserve Bank of Atlanta predicts the economy will grow at an annualized rate of 5.4% this quarter.

That means a lot of people will be needing dollars.

And the Fed is raising interest rates. That makes holding dollars more profitable for investors.

Both of these factors are bullish for the dollar.

What to do: If it stays above the trend line, you’ll want to look for American-focused companies. You could buy the PowerShares DB U.S. Dollar Bullish ETF (UUP). But this index doesn’t move much. It might go 7% higher this year, but it won’t do more than that. A way to get more bang for your buck is to buy stocks in companies that benefit from a stronger dollar. The way to do that is to stick with the Russell 2000 companies. These are small-cap companies that only do 22% of their business internationally, compared to 47% for the S&P 500. The one-click way to buy the Russell 2000 is with the iShares Russell 2000 ETF (IWM).

We’ll be watching this trend closely.

As I showed you, this is a major theme that will have a direct effect on your wealth over the next year. 

The next move will be very telling… And now you’re prepared, no matter what happens.

Regards,

Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. One sector should have dominated during the dollar’s recent decline, but hasn’t… Tomorrow, we’ll talk about that sector and why it will struggle this year.

Our reader mailbag has been unusually light these past few days…

Remember, we’re always eager to read your feedback and take your suggestions. It shows us what we’re doing right and what we should improve.

If you have a question, comment, suggestion, or even a trading story that you’d like featured in the Daily mailbag, send it right here.

Not since the Model T replaced the horse and buggy has America seen a shift this huge in the way we drive. Within the next two years, we’ll see 10 million of these cars on the roads—a 49,000% increase from today.

Get the full story here…