While the United States is not yet in a recession, the dollar continues to weaken against other currencies in the forex market. Although the prospects of a devaluation of the dollar are low, it is very likely that the Fed will issue more rate cuts, weakening the currency in the forex even more.
Given the situation, the trader and investor have to develop effective forex strategies, to protect their assets and investments, and also make profits. Here are some forex strategies that you may want to consider.
First we should look at gold. Right now gold futures are going over $00 dollars per ounce. With the Fed expected to implement more rate cuts, coupled with rising oil prices, the value of gold is expected to go even higher. As it goes up, it also helps commodity currencies. Therefore, it would be a good idea to go long on commodity currencies like the AUD (Australian Dollar) and the CAD (Canadian Dollar).
An alternative strategy for the forex trader / investor is to purchase gold itself. It is interesting to note that the fastest rising economies in the world -China and India- have announced plans to increase their gold reserves beginning in 2008. The European Central Bank (ECB0 currently has 186 billion Euros worth of gold.
As the price of gold has doubled over the past five years, even hedge funds and investment firms are taking stock. There is no reason why you should not do this too.
Other signs of a weakening dollar include reports that South Korea is encouraging contractors and other businesses to take risk management policies against the U.S currency. Kuwait no longer bases its oil price on the dollar, and other Middle Eastern countries might opt to follow suit if things do not improve.
What does this mean for the trader? It is that a fundamental part of any investment or forex strategy should include diversification of assets and cash. With other currencies gaining strength, you should consider going along with the Brazilian Real, the Euro, Russian Rubles, Singapore Dollar or Indian Rupee.
The poor performance of the dollar at the forex means that for businessmen holding Euros (and other strong currencies), now is the time to purchase dollar based assets and properties overseas. Of course it also offers the advantage of giving you a greater purchasing power when buying goods and merchandise in the United States.
If the plummeting dollar is having an adverse effect on your business income, consider the following: India now requires tourists to pay Rupees instead of dollars when visiting tourist sites. If you are in a similar situation, consider switching to your local currency.
The uncertainty prevailing in the forex and financial markets can leave even veteran traders confounded. But by using these forex strategies you will still be able to make profits in the market.