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Shorting the US dollar? Learn how & where to trade USD

August 8, 2020 18:41
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In this post, Stanko will talk about the latest important news connected with the US dollar and how to short the US dollar. Shorting is a popular trade technique among numerous traders, gamblers, and individual investors. Markets are easily affected by unpredictable events, and most traders are now taking advantage of declining needs. A dovish Fed, tensions with China, and no progress in Congress on a new coronavirus aid-package, not to mention the pandemic, all have combined to keep the US dollar in sell-off mode. The Federal  Reserve announced that it will continue to buy Treasuries and mortgage-backed securities “at least at the current pace” over the coming months. The Federal  Reserve is ready to use its full range of tools to support the US economy and interest rates will remain at current levels until 2022. The US policymakers indicated unprecedented levels of uncertainty over the economic future but according to analysts, the situation for the USD could be better at the beginning of the 2021 year.

The US just published the ADP Employment Survey, which printed just 167K, much worse than the 1.5 million expected. Equities pared their rally, but the dollar remained under pressure across the board. The EUR/USD pair advanced above the 1.1800 level, reaching an intraday high of 1.1904, with the movement backed by dollar’s self-weakness. The market continues to dump the US dollar as the US is getting more and more difficult with a sharp rise in unemployment and the Fed would probably not hike interest rates in the upcoming years. Already stressed by the impact of the Covid-19 pandemic, the living standards of the American people will be squeezed like never before. At the same time, the world has serious doubts about the once accepted assumption of American exceptionalism. Currencies strike the balance between these two forces, domestic economic fundamentals and foreign perceptions of a country’s strength or weakness. According to the Congressional Budget Office, the federal budget deficit is likely to rise to record levels this year. The US Federal Reserve announced it will begin buying corporate bonds. Additionally, the US Government is looking into a $1 trillion infrastructure spending program, which could boost the economy but all of this indicates that the US dollar will probably not see big gains this year.

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How to short USD

Shorting the US dollar is basically betting against the USD and when you short the USD you are expecting the price to go down instead of up. So you can make money when the price goes in the opposite direction and for those with great skill is a way to make some good money. One of the easiest ways to short USD is on the Forex market through a margin trading platform. Many brokers allow this type of trading, with margin trades allowing for investors to “borrow” money from a broker in order to make a trade. It’s important to remember that there may be a leverage factor, which could either increase your profits or your losses. It’s not a good idea to hold a short position for long periods of time or to leave an open short position with no stop-loss order. The EUR/USD advanced above 1.1900 this Wednesday but the risk of additional advances is not over yet and the major trend is still bullish (uptrend). The global political tensions have also a big influence on this pair but the pair needs to fall below 1.1700 level to extend moves lower. On this chart, I marked support and resistance levels – 1.1900 represents the current resistance levels, 1.1700 and 1.1600 are the current support levels. If the price jumps above 1.1900 it would probably reach 1.1950 level very soon, the next target could be located around 1.2000. If the price falls below 1.1700 that could be a very good opportunity for the short- term traders, short-term traders can put the stop loss at 1.1715 and take profit at 1.1670 or below.

Another way to short the USD is to sell this currency at a price you feel comfortable at, wait until the price drops, and buy the USD again. Becoming profitable “by shorting the USD” requires a strategic plan with short and long-term goals, when you will trade, the amount of capital, trading time frames… A good trading plan must be researched, tested on historical data, and tested in a live market. Technical and fundamental analysis are the most important tools when it comes to analyzing the movements of this currency. Investors and the long-term traders are generally more focused on the fundamental analysis while short-term traders usually trade according to technical analysis in order to profit from short-term price moves instead of waiting to profit from long-term price movements. In my opinion, every trader or investor who wants to become profitable should use a combination of technical and fundamental analysis to make decisions. Fundamental analysis helps you to figure out the real market value while technical analysis helps you to find a better entry or exit position by predicting the price movement of the USD.