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This Currency Could Rally Double Digits in the Coming Months

By Brett Eversole
Monday, July 6, 2015

Major currencies are rising in value...
 
Since the U.S. dollar peaked on March 13, the Brazilian real is up around 8.5%. And the euro is up around 5.7%.
 
But two major currencies have lost value versus the dollar – the Japanese yen and the New Zealand dollar.
 
The fall in the New Zealand dollar has been spectacular. And investors have fled... which gives us an opportunity. History says this currency could soon bounce by double digits.
 
Let me explain...
 
The Japanese yen is down around 1% since the dollar peaked. But the New Zealand dollar has performed much worse than the yen.
 
It's down around 7.2% since March 13. And since last July, it's down a full 24%.
 
That decline scared investors out of the currency. Negativity in the New Zealand dollar hit its most extreme reading ever in June.
 
You can see this in the chart below. It shows the Commitment of Traders (COT) for the New Zealand dollar. The COT is a weekly report that shows the real money bets of futures trades.
 
It shows if traders love or hate an asset. And it's a useful contrarian indicator when it hits an extreme.
 

Today, the COT shows the most extreme negativity we've ever seen. Traders are betting the New Zealand dollar will continue its decline. But they're all making the same bet...
 
History shows that when futures traders all agree, the opposite tends to happen. And that means the New Zealand dollar could jump higher soon.
 
To test this, I looked at every time the COT fell below zero and then rose above that level over the past decade. The results are impressive...
 
 
3 Months
6 Months
1 Year
After COT Extreme
3.5%
6.9%
11.7%
All Periods
0.7%
1.3%
2.5%

The New Zealand dollar increased 11.7%, on average, a year after hitting and rebounding above a negative sentiment extreme. That's more than four times the typical one-year return we've seen over the past decade.
 
These are impressive results, but the New Zealand dollar isn't a "buy" yet.
 
You see, the COT just hit a negative extreme. We need to see the COT rise above zero before we consider buying. That will likely occur as the currency begins rising, which further lowers our risk.
 
The easiest way to get long the New Zealand dollar is the WisdomTree Australia & New Zealand Debt Fund (AUNZ). This fund owns debt in both Australia and New Zealand, but based on its history it tracks New Zealand's currency well.
 
As I said, the New Zealand dollar isn't a buy yet. But keep an eye on this currency in the coming months. It'll be a fantastic trading opportunity soon.
 
Good investing,
 
Brett Eversole




Further Reading:

"The Japanese yen is in danger..." Brian Hunt and Ben Morris write. In short, Japan has problems... and that means problems for its currency, the yen. But this presents a great opportunity to profit. Brian and Ben say "you could make double-digit annual returns over the next few years." Learn how here.
 
Most people don't know currencies can affect their trading. But Ben says if you're buying foreign stocks – even with exchange-traded funds – currency moves can be a major tailwind, which adds to your profits... or a significant headwind. "Either way, you need to know what you're dealing with," he writes. Learn more here.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Progressive (PGR)... insurance
American Financial Group (AFG)... insurance
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Interactive Brokers (IBKR)... online brokerage
Marriott Vacations Worldwide (VAC)... timeshare vacation homes
Time Warner (TWX)... entertainment
Comcast (CMCSA)... cable TV
Stanley Black & Decker (SWK)... tools
Deere (DE)... heavy equipment
ConAgra Foods (CAG)... Big Food
Domino's Pizza (DPZ)... pizza
Campbell Soup (CPB)... soup

NEW LOWS OF NOTE LAST WEEK
 
Apollo Education Group (APOL)... secondary education
Wynn Resorts (WYNN)... casinos
Groupon (GRPN)... coupons
Wal-Mart (WMT)... retailer
BlackBerry (BBRY)... phones
Keurig Green Mountain (GMCR)... coffee
Xerox (XRX)... copy machines
Qualcomm (QCOM)... Big Cheap Tech
Hewlett-Packard (HPQ)... Big Cheap Tech
Chevron (CVX)... Big Oil
ConocoPhillips (COP)... Big Oil
ExxonMobil (XOM)... Big Oil
Alcoa (AA)... aluminum
Peabody Energy (BTU)... coal
Arch Coal (ACI)... coal
Yamana Gold (AUY)... gold
Pan American Silver (PAAS)... silver
Norfolk Southern (NSC)... railroads
Union Pacific (UNP)... railroads

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