I am new to this, I am not interested per se in active trading of currencies. However, I am interested in hedging against dollar decline via purchase of Euros, Yen and Swiss Franks and possibly Australian Dollar. Either a basked of these or possibly only Euros.
My business has presence in Eastern Europe where Dollar is king but Euro is gaining. My fear is that with what’s happening to USD daily, the Euro will overtake USD position. I want to hedge against this.
My question is this, should I simply purchase Euros in the forex market and just hold them as a hedge or should I purchase FXE fund or something of that sort? Sorry, I am just not familiar with this and that’s why I would appreciate any expert advice.
Have you considered buying commodities like oil or gold as hedging against the fall of dollar?
Currently there is a strong inverse correlation between USD and oil. That is when dollar goes down, oil goes higher and with rumoured talk of oil producers switching to other currencies than dollar it may be a good idea to buy oil as a long term investment. Anyway from what I heard this winter is predicted to be one of the coldest winters in US so there will be heavy demand for oil and the laws of supply and demand will prevail.
The issue is that I already own some oil. It has not worked out great because there is no perfect way of buying actual oil. I bought USO fund awhile ago, and while it’s recovered somewhat, I am still ways away from recovering my loss.
My issue is that the place where I do my business, there are two main currencies, USD and Euro. So the hedge is really against Euro running away from the USD. I wouldn’t care so much say if USD lost much more to Yen but remained stable against USD.
So again, my basic question I guess is should I simply open a forex account and buy Euros and hold them and then cash out? If Euro continues to climb against USD, I come out a winner. If USD recovers, not so bad for me because the hedge worked (remember that the currency in the country of my business is pegged to USD) so I come out a winner either way.
So simply speaking, should I buy Euros straight out with Forex (and if so, with which broker) or should I purchase a fund such as FXE?
Well that is a question that simply boils down to the performance of EUR vs USD and projected into a medium and long term future.
To answer your question I did look at the weekly chart of EUR/USD as shown in the attached graph. You will notice that except the dip observed in latter part of 2008 and early 2009 (due to the financial turmoil affecting all crosses) euro has performed well againdt USD. The Ichnoku diagram projected 26 weeks forward confirms this. Now I would say that other fundamentals such as the rumoured oil producing nations switching to EUR will help this currency as well.
If we assume that EUR is a good buy then buying EUR as FX may not be a bad option. With the sort of money you are going to put in it has to be a reputable broker. I personally deal with GFT Global Forex Trading and they are one of the most reputable ones. There are of course others as well. Avoid unregulated brokers like the ones set up in some Banana Republic.
If I understood your question right your looking for a hedge against USD decline.
USD decline means de-valuation in it’s relationship to other currencies expressed in it’s exchange rate like EURO, SWISS FRANC, YEN and so on.
Substituting USD with another currency provides you with a hedge against the decline of the USD but not with the decline of the currency you are using as a hedge. It doen’t provide you with a hedge against inflation either. Especially when you are looking at a time span from 12-24 month.
A hedge against decline of the USD and other currencies [B]AND[/B] inflation would be physical gold. Not the paperinstruments. I’m talking the real stuff in your possession.
Also, if bought in 1oz Coins and 1kg Bullion Gold is exchangable all over the world and/or where you are doing business.
OK, so probably not enough to go to a bank for some kind of OTC option or other structure. You could go with futures or options on futures, though the latter out two years might be thin and pricier than you’d like. Of course you could also work in the spot market. The thing you’ll run into with either futures or spot is the need to keep sufficient margin posted.
If you’re risk is Euro appreciation against the USD I wouldn’t worry about a basket.
Hey Guys, thanks for the answers. Very much appreciated.
But what about going with FXE fund. It pays 1% yield, whereas I guess if I simply purchase Euros in FX market, I will get no yield at all, right? Any thoughts on this?
I have reviewed GFT Global Forex Trading and soon will open an account. However, for comparison sakes can you recommend another ‘very’ reputable broker? That’s going to be the main thing for me for funding the account is having a broker I can trust given my amount.