It was a mixed week for your Global Stock Investor portfolio. Your bets against European currencies in the form of the Direxion Funds Dollar Bull 2.5x Fund (DXDBX) and the Market Vectors Double Short Euro ETN (DRR) fell, while your bets on the Asian currencies — WisdomTree Dreyfus Chinese Yuan Fund (CYB) and the CurrencyShares Japanese Yen Trust (FXY) — continued to strengthen.
In last week’s Global Stock Investor Hotline, I noted that I expected the British pound sterling and euro to rally against the U.S. dollar, which had reached a 2 1/2-year high against an index of the currencies of six major U.S. trading partners. Indeed, the British pound sterling soared through the $1.54 mark in yesterday’s trading and the dollar’s 4.7% drop during the past three days was the biggest since the euro’s inception in 1999.
The steady upward trend of the U.S. dollar against European currencies was due for a technical correction anyway. But the immediate cause of the reversal was the Federal Reserve’s new $800 billion plan to ease the flow of credit in the United States. Under the plan, the Fed will purchase as much as $600 billion in debt issued or backed by government-chartered, housing-finance companies and also will set up a program of $200 billion to support consumer and small-business loans.
With European economies in worse shape than the United States, I expect the U.S. dollar will soon resume its upward trend against the European currencies. After three days of losses, the U.S. dollar already was gaining strength against the Swiss franc, British pound sterling and the euro in this morning’s trading. Use this pullback to add to your positions in the Direxion Funds Dollar Bull 2.5x Fund (DXDBX) and the Market Vectors Double Short Euro ETN (DRR).
Your bets on the undervalued Asian currencies — WisdomTree Dreyfus Chinese Yuan Fund (CYB) and the CurrencyShares Japanese Yen Trust (FXY) — remained strong this week. The Chinese yuan hit highs not seen since early October and the Japanese yen hit a five-day high against the U.S. dollar in early Asian trading this morning.
The Greenback continues its status as the world’s safe haven and reserve currency. As long as global markets remain in a state of uncertainty, your bullish bets on the U.S. dollar and the Asian currencies will remain your safest bets.
All of our picks remain BUYs at current levels.
Portfolio Update
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) ended the week just about where it started. But just this morning, the Chinese yuan climbed to a 1 1/2-month high against the dollar. As a managed currency, don’t expect too much movement either way. CYB is a safe haven BUY.
The Direxion Funds Dollar Bull 2.5x Fund (DXDBX) hit a record high of $46.06 last Thursday, before correcting sharply over the last three trading days. This is a correction in a bullish trend for the dollar. This is an excellent time to BUY DXDBX.
The Market Vectors Double Short Euro ETN (DRR) fell sharply as the U.S. dollar dropped three straight days against the euro on Tuesday. This is a correction and the euro will soon resume its downward trend. DRR is a BUY.
The CurrencyShares Japanese Yen Trust (FXY) broke through the $106 level last Thursday before closing just above the $104 level yesterday. As a research note from Credit Suisse Group noted: “The fundamental backdrop is still yen-supportive and we expect to see it continue to strengthen… It’s clear that the economic problems are not over. Any bounce in confidence quickly fizzles out and risk aversion returns.” And that is bullish for the yen. FXY is a BUY.
The Rydex Managed Futures Strategy Fund (RYMFX) dropped slightly this week, as currency and energy trends reversed sharply. Managed futures funds ideally show many of the same properties as hedge funds, generating both absolute returns and low correlation to stock markets. But they can also show very rapid movements in the short term. However, the low volatility of this fund during the reversals in currencies and energy sectors this past week is reassuring, and increases my level of comfort with its “black box” investment strategy. It remains a defensive BUY.
