One way or another, the dollar is going down.  Hold on to your shorts because this will be the short of the decade.  

Recent interventions in commodity markets, which has been a combination of short selling in the Gold market, and large institutions taking profit in a multi-year bull market in hard commodities such as Oil, has caused a short uptick in the dollar.   The fed didn’t raise interest rates, and US economic data did not get any better.  Nor was there any watershed event or even a clear indication that the US economy is improving.  There is no other reason the dollar is up, other than the previously mentioned factors.  34% of the world’s wealth (calculated in dollars) is still USD based, so any sell off in stocks, commodities, and bonds (meaning a return to cash) means a boon for the USD.

This trade will be a long term play and should not be taken with large leverage unless you are a day-trader who will be in and out of the markets.  There is an overwhelming amount of negative data supporting the argument for USD down, so let’s examine what could potentially cause the USD to rise, which we shall consider as USD down trade exit strategies.

What can change this trade (stop loss / exit points) can be the following unlikely scenarios:

•    Fed raises interest rates
•    ECB cuts rates (unlikely because unlike the Fed, the ECB only mandate is to contain inflation)
•    US Economy not only bottoms but shows signs of rapid growth (a bottom would not cause the dollar to rise without an increase in rates)

Anyone who previously thought it somehow negative to promote the shorting of the dollar should be silenced with Treasury’s recent move, a message to the world saying that the US Government will backup free market capitalism with state sponsored  socialism for the rich.  None of these actions can possibly be good for the dollar in the long term.  In the short term, as we see the Euro-bubble collapse, it is possible for the USD to rise slightly, but this should not be a prolonged trend.  Euro weakness does not necessarily make a strong dollar, world markets are desynchronized and interest rate parity theory has stopped working years ago.

How to short the dollar?

•    Long term close your eyes trade; sell now with no stop loss and take profit at USD Index 65.
•    Short term automated trading systems with Sell USD bias.  Tweak your systems to find USD short trends and take profits (systematic day trading)
•    Non-USD portfolio (European/Asian bonds / equities)
•    Long Swiss Francs or CHF based bonds

There may be a time when investment in the USD will be the trade, when once again foreign investors will flock to USA as a beacon of capitalism (meaning the ability to make money, which is restricted in many countries by strict government controls and the threat of potential nationalizations).  Now is not that time.