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What’s Next For The US Dollar?

Have you been in a holding pattern for the last month when it comes to betting on a USD upside? The beginning of May was looking up for the greenback, particularly as it was trending closer towards strength against the Euro, pound and Yen. Nearign the end of May, the USD started losing that strength in relation the these foreign currencies, but again strengthed. The question for those that are or will be trading these currency pairs is where will the dollar go now?

An interesting development is that Brazil may invest some of its $20 billion Sovereign Wealth Fund into US dollars. Why they would invest in USD, when it is so weak against other currencies with no potential reversal in site. Brazil may see the dollar as undervalued and a longterm investment in the USD would see a nice appreciation with the USD over the next few years. As well, Brazil may be looking to make their exports even more competitvely priced on world market by holding USD, and they can better compete against RIC as well as other developing nations. An investment in the dollar at this point may provide a nice return if you have a longterm view.

Nothing makes currencies react like the central banks that govern lending rates, and the Federal Reserve may certain certain economic indicators as a chance to reverse course. The Fed may actually be mulling raising the lending rate, which signals strength for the USD and good news if you’re long, but anything less than an interest rate rise may spook the crowd and send the USD lower. The coming month could prove to be very interesting for currency trading.