As the U.S. government comes together over President Obama’s plan to reduce the deficit, the U.S. dollar has performed pitifully. For instance, both the Euro and the Japanese yen have increased drastically in value as the dollar sinks. The Euro recently went as high as 1.4547, while the yen went up to a high of 120.40. In response to the dollar’s loss of value, the U.S. stock markets have performed well. The Dow Jones had a total gain of over 1 percent on Wednesday, April 20th alone.
What does this mean for forex traders and the Oracle Trader? It could mean that as the U.S. dollar drops in value, purchasing public company stock in U.S. businesses becomes a discounted purchase for foreign investors and traders. It also means that for those that had the foresight to short the U.S. dollar a large bundle of money was made.
Will this trend continue on, or is this a limited time deal? This is harder to analyze. The U.S.’s deficit has grown remarkably, and while President Obama has set forth a method of lowering this deficit, whether or not it will be effective is a different question. Set to reduce the deficit by $38 billion, many people do not have faith in the measures taken by Washington. If this sentiment becomes the majority, the dollar has a good opportunity of losing even more value. If these worries become passé, then the dollar will rebound. Market sentiment is always easier to judge in retrospect, however. But by getting a good look at how this plan out of Washington will work over the first few months of the fiscal year, we can position our Zecco trades to profit off of the deficit reduction measures.
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