Your Global Stock Investor portfolio had a strong week, with all your positions including the Direxion Funds Dollar Bull 2.5x Fund (DXDBX) and the Market Vectors Double Short Euro ETN (DRR) showing strong gains, and the CurrencyShares Japanese Yen Trust (FXY) hitting a record high.
The notable exception was the WisdomTree Dreyfus Chinese Yuan Fund (CYB). On Monday, the yuan fell by an unusually large 0.7% against the dollar. The yuan’s decline in recent days comes amid growing signs of weakness in China’s economy. Although the yuan’s exchange rate is actively managed, the Chinese central bank helped to trigger the drop by posting reference rates Friday and Monday that traders regarded as signs the bank favored a weaker yuan. Chinese exporters welcome a weaker yuan because it would make their goods less expensive in the United States. A large devaluation is unlikely, because it would cause friction with the incoming Obama administration, which has signaled it wants a stronger Chinese currency to make China a bigger consumer of U.S. exports. Nevertheless, with the increased uncertainty surrounding the yuan, I am moving WisdomTree Dreyfus Chinese Yuan Fund (CYB) to a HOLD.
In other news, the European Central Bank (ECB) is expected to cut interest rates by 50 to 75 basis points tomorrow after reports confirmed that inflation is not much of a problem in the Eurozone. This puts further pressure on the euro and is bullish for your position in the Market Vectors Double Short Euro ETN (DRR).
With the U.K. economy sliding deeper into recession, the Bank of England is increasingly likely to slash its key interest rate for the third time in as many months and may prompt the government to launch a second fiscal stimulus package next year. A weaker British pound sterling is good news for your position in the Direxion Funds, Dollar Bull 2.5x Fund (DXDBX).
With the exception of the WisdomTree Dreyfus Chinese Yuan Fund (CYB), all of your other picks remain BUYs at current levels.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) had its worst week in recent memory, with the yuan falling on the back of expectations that the Chinese government may devalue the currency to stimulate exports, which account for 40% of China’s (slowing) economy. Although the political cost of such a devaluation would be high, and therefore unlikely, CYB is less of a sure bet than it was before. Therefore, I am moving CYB to a HOLD.
The Direxion Funds Dollar Bull 2.5x Fund (DXDBX) ended the week higher after the previous week’s sharp sell-off. With DXDBX still below its previous highs, and European currencies under additional pressure thanks to interest rate cuts this week, this is an excellent time to BUY DXDBX.
The Market Vectors Double Short Euro ETN (DRR) also recovered sharply this past week, hitting the $58.00 level on Monday, before correcting yesterday. With the European Central Bank expected to cut interest rates tomorrow by as much as 75 basis points, the euro has no where to go but down. DRR is a BUY.
The CurrencyShares Japanese Yen Trust (FXY) closed at a record high of $106.97 on Monday, before correcting ever so slightly. The yen will continue to gain steadily as the carry trade unwinds. FXY is a BUY.
The Rydex Managed Futures Strategy Fund (RYMFX) rose slightly this week, benefiting from favorable trends in both the currency and oil markets. Based on its recent performance under volatile conditions, this fund benefits from strong risk management, and remains a defensive BUY.