With gold rallying as of late, it’s been doing no favors to bullish greenback traders. The downward trend will only intensify according to Wells Fargo.
“The currency market has been very sensitive to this sort of thing while whereas the Treasury market just sits,” said Wells Fargo’s head of macro strategy Micahel Schumacher during an episode of CNBC’s “Trading Nation.” “The currency markets have been much more influenced, and we think that’ll remain the case for the next few weeks.”
“The dollar could conceivably get a little bit of a bounce,” Schumacher added. “But if you look for, let’s say, a trade for the next four to five months, we think it’s dollar weakness.”
Investors who want to go short on the dollar can look at the Invesco DB US Dollar Index Bearish Fund (UDN). UDN seeks to track the changes, whether positive or negative, in the level of the Deutsche Bank Short US Dollar Index Futures Index. The index reflects the changes in market value over time, whether positive or negative, of a short position in the DX Contract which expires during the months of March, June, September, and December.
The fund seeks to track the index by establishing short positions in DX Contracts. DX Contracts are linked to the six underlying currencies, or the index currencies, of the U.S. Dollar Index (USDX®), or the USDX®. The index currencies are Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc.
An alternate way to play a weaker dollar is via gold, which typically moves opposite of the U.S. dollar. Investors can use gold-backed funds via the SPDR Gold Shares (NYSEArca: GLD).
Another fund to consider is the Global X Gold Explorers ETF (GOEX). The fund seeks to provide investment results that correspond generally to the price and yield performance of the Solactive Global Gold Explorers & Developers Total Return Index, which is a free float-adjusted, liquidity-tested and market capitalization-weighted index that is designed to measure broad-based equity market performance of global companies involved in gold exploration.
A Contrarian Move
Investors who want to take a contrarian view on a weakening U.S. dollar can look at greenback strength via the Invesco DB US Dollar Bullish (NYSEArca: UUP) or the WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU). UUP tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
On the other hand, the actively managed USDU tracks the USD against a broader basket of developed and emerging market currencies, including China, India, South Korea, Switzerland, Australia, Mexico, the United Kingdom, Canada, Japan, and Europe.
USDU provides investors with
- a broad, dynamic, and effective way of gaining exposure to the U.S. dollar against a basket of foreign currencies in an ETF structure.
- an alternatives bucket as a broad-based diversifier as it exhibits strong negative correlations to international equity and bond portfolios.
For more market trends, visit ETF Trends.