USD Falls as Default Approaches

One might think that it is a Forex conspiracy revealed as the USD falls as default approaches on United States sovereign debt. There is a stated reason for House of Representatives blocking a new budget and threatening to let the United States default on its sovereign debts. It is allegedly all about Obama Care, the health insurance program intended to guarantee health insurance coverage to all Americans. The stated complaint is that everyone will have to sign up and pay for some sort of health insurance. Because a small group of politicians do not like the law they are apparently willing to wreck the Federal Government rather than let a law that was passed by both houses of Congress and signed by the President take effect. Well, here is a Forex alert. There could well be more than meets the eye to all of this. Is this really a Forex Conspiracy? We could not conceive of a better plot for a Cold War spy novel by the recently deceased Tom Clancy. . .  Hidden behind a lot of political posturing is a plot to bring down the US dollar, the international currency trading system, and international commerce. . .

Trading as USD Falls as Default Approaches

As Forex traders are aware the USD dollar has slid a bit on fears that Congress will not come to an agreement on a budget not to mention raise the debt ceiling. While some may consult their favorite FX Conspiracy Theory others will simply short the USD against the YEN, GBP, EUR, CAD, CHF, or AUD. Trading Forex options may be a better idea as the current dilemma may simply be political grandstanding after all. It is no matter whether this is politics as usual, or a deeper Forex conspiracy. A trader can buy puts or calls on the USD and limit his risk to the cost of the options contract. A call contract gives the purchaser the right to buy dollars with the currency of his choice but confers no obligation to do so. A put contract gives the buyer the right to sell dollars for another currency but confers no obligation to do so. In each case the trader will only execute his options contract if doing so is profitable. And, he can also simply exit his contract by making the opposite trade and never buy or sell USD.

Selling Options when the USD Falls a Default Approaches

We often mention on these pages that those who write options contracts i.e. sell them commonly make more money than buyers. And we always note that only traders with deep pockets engage solely in selling options contracts. This seems to be especially important now that the United States government is looking at a first time default on its national debt. From our viewpoint it seems difficult to believe that the hatred of a few politicians could be so intense that you would risk harming the nation while pursuing a single political issue that could always be addressed later. Where are you Tom Clancy when we need someone to write a Forex Conspiracy thriller with Ben Affleck in the in the starring role in the subsequent movie. And, on a serious note, do your own fundamental analysis and if you do not understand what is happening and what you could do about it, do not risk your money and watch events unfold.