The U.S. dollar and the Japanese yen continue to be the only safe havens in the midst of this global turmoil. With the currencies moving so sharply, and global stock markets continuing to swoon, I am going to hold off making any new recommendations this week. However, I would not be surprised to see some sort of correction against the trend after such extreme moves, and I encourage you to add to your existing position when that happens.
The U.S. dollar continued its remarkable strength last week, surging higher as investors unwound riskier positions and returned to cash. The Greenback rose 9% to a six-year high of $1.5751 against the British pound, climbed 5.2% to a two-year peak of $1.2721 against the euro and gained 7.8% to C$1.2737 against the Canadian dollar. The U.S dollar’s continued strength is responsible for your big profits in the Direxion Funds Dollar Bull 2.5x Fund (DXDBX), the Market Vectors Double Short Euro ETN (DRR), and your short position in the CurrencyShares British Pound Sterling Trust (FXB).
The Japanese yen also soared last week as the carry trade unwound and investors around the world liquidated positions in equities, commodities and higher-yielding currencies. The yen hit 13-year highs against the dollar and pound, and jumped to a six-year peak against the euro. For the week, the yen rose 8% to Y93.44 against the dollar (a 13-year high), climbed 12.7% to Y118.94 against the euro and gained 16.4% to Y147.11 against the pound. As result, the CurrencyShares Japanese Yen Trust (FXY) soared 7.21% for the week.
The biggest story of the week was the continuing collapse of the British pound sterling. The concern over the U.K. economy has sent the British pound sterling into freefall. On Friday alone, the British pound fell 8 cents against the dollar, its largest intraday drop since 1971. For the week, the pound fell to close at $1.5751, 10% lower than its rate on Monday morning. Against the Japanese yen, it dove over 18% last week. The pound also plunged against the euro, taking it to a lifetime low against the single currency. With the United Kingdom’s Q3 gross domestic product falling 0.5%, the first decline in 16 years, markets are now predicting interest rates could fall to 2.5% by this time next year, down from 4.5% now. That means the U.K. currency’s fall is set to continue. It is already back down another four cents from Friday’s close even as I write this. Your short position in CurrencyShares British Pound Sterling Trust (FXB) had one of its best weeks ever, gaining 8.8%.
Sadly, last week’s bet, the Ultra S&P500 ProShares ETF (SSO), a leveraged ETF that seeks a return of double the daily return of the S&P 500 — suffered as equity markets continued their swoon. As you recall, this is a bet on a short-term bounce in the remarkably oversold U.S. markets between here and election day. With global markets tumbling, this has not been a good bet so far.
PORTFOLIO UPDATE
The Direxion Funds Dollar Bull 2.5x Fund (DXDBX) hit yet another a record of $44.49 this week. I expect the dollar’s bullish trend against all major currencies to continue. Move your stop to $39.90.
The Market Vectors Double Short Euro ETN (DRR) also closed at yet another new record high of $59.53 on Friday as the euro continues to come under pressure. Move your stop to $48.00.
The CurrencyShares British Pound Sterling Trust (FXB) fell to $159.18 — a record low. Tighten your stop to $174.00.
The CurrencyShares Japanese Yen Trust (FXY) closed at a record high of 105.10, soaring past the 107 mark at one point on Friday. Expect the yen to continue its steady ascent upward as the “carry trade” unwinds. Raise your stop to $96.50.
The Ultra S&P500 ProShares ETF (SSO) is your single bet on a market bounce. This will soar on any relief rally — right after the U.S. elections, for example. But even with a wide stop, this is a position that you may get stopped out of on any sharp downward moves in the market. Make sure you stick to your stops. Remember you can always get back into any position later.
P.S. Surging oil and food prices, as well as deteriorating economic confidence, have stoked inflation fears around the world in recent months, leaving volatile markets and jittery private investors in their wake. In times such as these, it’s good to have this forum to discuss key developments and to hear from the best financial minds in the world. I invite you to join me at the 4th Annual World Money Show London, 14-15 November, at the Queen Elizabeth II Conference Centre. Call 800/970-4355 and mention priority code 009613 or visit The World Money Show London to register FREE today!
