The Federal Bailout of over 2 Trillion dollars has taken a little time to get rolling, but we are already starting to see its effects on the financial markets. Strikingly, Gold has risen to over $1,000 an ounce and Oil has climbed above $70 a barrel. The commodity gurus like Jim Rodgers and T Boone Pickens are wearing their cheerleader outfits proud. Got to love that bow Tie Jim, don’t ever stop wearing that!

The US Dollar has lost across the board to almost every currency out there:
The Yen, Pound, Euro, and Swiss Franc have all made massive gains. Recently there was recovery in the dollar, which was contrary to many expectations. This makes sense because the dollar has been under fire for some time and even a poor investment will make a dead cat bounce. It looks like the short termed dollar rally has faded. The Dollar and the stock market have traded in tandem over the last few years since the financial crisis erupted.

The DOW just broke above 10,000 for the first time since the malice occurred:
As this brings relief to our citizens that the recessions may be ending it is scarring others more than it is helping. Harry Dent, Gerald Celente, Mark Faber, and others believe the real strife is about to begin. Remember the Great Depression had a big crash of 60% initially similar to the current financial crisis. What is often misunderstood is that after the big drop in 1929 the markets rebounded and almost fully recovered before taking a huge dive years later ending up losing more than 80% of investors money from when the market first dropped.

At this time we are at critical mass:
The DOW hitting 10,000 shows we have made a big recovery since the March 2009 lows. However, it is very risky to invest at these levels. It is very likely that the government bailout fund has been buying stock and artificially raising the price. Therefore, once the funds run out (anytime between December 2009 and March 2010), the market is in for a wild ride down. This will be very evident when the Christmas sales numbers come in much lower than any of the past five or even ten years.

I am a forex trader so why do I care about the market
The forex market is comprised of almost every single factor that can be interpreted to be part of the economy. The stock market has a huge impact on currencies, especially the dollar. If the stock market starts to weaken and investors become spooked we could see a rapid drop. This rapid drop will bring back tension in valuing the dollar. Many investors, big banks, and foreign countries will begin to fear if the dollar will continue as the reserve currency. At this time the dollar could really lose value quickly to other currencies.

So how can I profit from this?
It is important to note that when trading currencies you are not just buying or selling. You are always doing both at the same time. If you choose to sell the dollar you must decide what you are buying in return. The Euro does not look to be any safe haven currency, and we all know the problems with the Yen. It might seem easy to jump aboard the Yuan, but it is already at all time highs.

If I can stress only one thing it would be diversification
It would be smart to short a basket of currencies against the dollar. This will diversify risk and give a smooth return. But remember I said the breakdown could occur between December and next March.

How do you know when to put the shorts on?
Technical Analysis is the study of price action to determine the likely price targets in the short and long term of financial instruments. We have a special trend following system that will not only signal what currencies to buy or sell, but can make the trades itself automatically. With built in money management, correlations, and diversification the system is a very smart and simple way to protect yourself from the effects of runaway inflation. Get started now with the Trend Machine here.