The U.S. dollar got a nice pop on Friday as a better-than-expected employment report came out. However, I call this a “sucker rally” because the dollar’s broad trend has been downward since March.
Therefore, since the probabilities lie on the side of the trend, it’s best to short the dollar on rallies upward by buying foreign currencies against it: AUD/USD, GBP/USD and NZD/USD being some of the top candidates in my opinion since they’re leading the way in their yearly inflation figures.
These are likely the countries to have to raise interest rates first and that will only drive more money away from the buck and into these other foreign currencies. That helps the buyers of these pairs.
Another factor that really doesn’t work in the dollar’s favor is the global recovery that’s under way right now.
The dollar only ran up when the sky was falling. But now that financial markets are stabilizing, that works against the greenback. It does however, work in the favor of currencies that have higher inflation in their economies compared to the deflationary numbers in the United States. It also works in the favor of the higher-yielding currencies.
The deflationary Japanese economy is really causing money to pour out of the yen and into these currencies as well, which bodes well for: AUD/JPY, GBP/JPY, and NZD/JPY over time.
So keep these pairs on your radar screen. It doesn’t mean that any moment of any day is the time to buy them. But it does mean that they are fundamentally supported the most and therefore should be your top candidates to consider as your technical entry set-ups occur.
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