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United States manufacturing expands for the thirty-first month in a row according to the Institute for Supply Management’s report for February. As United States manufacturing expands so does the overall economy.
Unemployment has been going down for half a year and the nation added a quarter of a million jobs in February according to the Department of Labor. The threat of US dollar deflation has been successfully handled by the policy of the United States Federal Reserve.
Meanwhile Europe seems destined to fall back into recession due to its self-imposed austerity measures. Currency traders may consider whether or not it is time to buy puts on the Euro versus the US dollar as North America economic recovery outpaces Europe.
For that matter Forex traders might consider shorting the Euro versus the Rupee as India tops the manufacturing index internationally.
According to the Institute for Supply Management,
“Of the 18 manufacturing industries, 11 are reporting growth in February, in the following order: Apparel, Leather & Allied Products; Machinery; Primary Metals; Transportation Equipment; Petroleum & Coal Products; Fabricated Metal Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Chemical Products. The four industries reporting contraction in February are: Furniture & Related Products; Nonmetallic Mineral Products; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components.”
As the report shows, United States manufacturing expands across the board with only appliances and components, electrical equipment, plastics, and furniture lagging in the last month.
Combining the expansion of United States manufacturing with an improving employment picture and the dollar looks to be a better bet than the Euro in the months ahead.
One category that is shrinking in the most recent survey is inventories. Considering that bloated inventories often presage a recession this is good news as United States manufacturing expands.
If ongoing trade talks result in improved access to markets in China the dollar could do well for some time to come.
As always, profit in Forex comes from a clear view of the fundamentals that drive currency values as well as close attention to market sentiment across all Forex markets.
To the extent that a currency trader is uncertain about the direction of the US dollar versus the Euro or other currencies he may choose to trade options.
By purchasing calls or puts on one currency with another the trader limits his investment risk to the price of the options contract. He also enjoys the leverage offered by buying an options contract instead of buying or selling blocks of currency.
When he buys a put on the Euro with the dollar he obtains the right to sell Euros for dollars at the contract or spot price no matter how much the relative values of the currencies change.