Expect More Dollar Weakness? Try These Forex ETFs

Wow, it looks like the word is finally out. The Wall Street Journal and the rest of the news media has finally stated that the Dow is entering a bear market, based on traditional measurements. That happens when an index falls at least 20%, as the Dow has done from the October highs. With this type of cutting-edge reporting, it's no wonder investors are lost in the market.

If you wait for the traditional media to alert you of problems in the market, you're likely to be reacting at the worst possible time. That's why I continue to urge you to pay close attention to what the market is telling you and forget about all the financial hoopla.

As I said on Friday, the market has been under so much pressure that there is a high possibility we will see a bounce higher this week. The strength of that bounce will certainly give investors some important information about what the market is likely to do next. My indicators are pointing to a short-term bounce followed by more downside testing.

Today, though, we are going to step away from the stock market and look at some possibilities that may exist in the currency markets. Most investors know that the U.S. dollar has been declining for years. As investment guru Jim Rogers says, "The dollar is a currency that's terribly flawed, and it's going to be under duress for many years to come." Rogers continues to believe that the U.S. economy is headed for its roughest recession in years, which will continue to put heavy pressure on the dollar.

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U.S. Dollar Index (DXY)

Click here for larger image.

Source: TC2000

The chart at right shows that the dollar topped in 2002 and has been headed lower ever since. I expected a rebound in the dollar at least up to a yellow downtrending line, and noted that if this bounce happened it would give investors an opportunity to pick up commodities at better prices, but that rebound is not materialized. I still believe that it may eventually happen, but it looks like the intermediate-term trend is still down.

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Rydex Euro Trust ETF (FXE)

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Source: TC2000

The euro is often compared to the dollar, and you can see from the chart at right that it has steadily increasing against our currency. It has been in a consolidating pattern over the past several months, but it now looks like it might be ready to resume its uptrend.

There was some fairly heavy selling in May and early June, but that trend has recently turned around over the last few days. The Rydex Euro Trust (FXE - commentary - Cramer's Take) ETF also has the added benefit of a dividend that is slightly over 3%. The euro may continue to be a good place to park money as long as it stays above the $153 level.

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At time of publication, Manning had no positions in the stocks mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.