Securities markEt
Selling Buying
Pressure Pressure
But Europe and the European Central Bank (ECB) are
fighting a 16-year-high inflation. So their proverbial hands
Figure A — EUR/USD
are tied; if they lower rates, they risk inflationary pressures
spiraling out of control.
Eventually, however, the overwhelming pressures of slow
economic growth will become impossible to ignore, and
the ECB will be forced to lower interest rates to stimulate
economic growth — just as the Fed did in the United States.
But instead of shorting the EUR/USD currency, and
fighting a strong trend, you might consider switching your
focus to the typical parallel and inverse currencies of the
EUR and look for opportunity there. For example, try
shorting GPB/USD, which is a parallel moving currency
pair, or going long on the inverse pair — the USD/CHF.
Sustained upswing
Look ahead, make your plan
When you examine the long-term chart of the EUR/USD
currency pair (Figure A), you’ll notice significant buying
pressure and that the indicator lines are extending upward.
However, the EUR/USD’s inverse currency pair, the USD/
CHF — which typically moves in a mirror image to the
Figure B — USD/CHF
EUR/USD — is starting to form a support level, and recent
losses have been limited.
As Figure A indicates, the EUR/USD has been on
a sustained upswing, meaning the U.S. dollar has been
hitting all-time lows against the euro. However, the USD/
CHF (Figure B) and USD/JPY (Figure C) both reached
all-time or 52-week lows in March and then bounced back,
Upswing
which could mean the U.S. dollar has already reached its
low against these other currencies, and these pairs are now
rebounding as the USD falls against the EUR.
The same type of effect is being reflected in the USD/
NZD, where highs were hit months ago and have now
fallen off (Figure D).
When the U.S. dollar eventually begins to make headway
— it’s never going to fall to zero, after all — you’ll want to
Figure C — USD/JPY
begin looking closely at the parallel and inverse currency
pairs with which it is matched.
The tide will turn. It may take the U.S. Federal Reserve
increasing interest rates to fight inflation concerns, or maybe
the big European banks will begin to show signs of strain
related to the world credit crisis. Or maybe, just maybe, a gold
reversal is already indicating the U.S. dollar has hit bottom.
Upswing
Whatever sparks the move, the dollar will rebound.
Will you be ready? Start preparing now for this inevitable
Figure D — USD/NZD
reversal, which may come sooner than you think.
Downswing
Blake Morrow can be reached at
bmorrow@wizetrade.com
when the u.s. dollar evenTually begins
to make headway, you’ll want to
begin looking closely at the parallel
and inverse cuRRency pairs with
which it is matched.
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66 I July 08 I Growing Wealth I growingwealthmag.com
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