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Time to Position for a Strong Dollar?

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The U.S. Dollar has enjoyed a bit of a rally, regardless of America's unstated policy of devaluation at literally all costs. Why would anyone would want our wampum --beyond just wanting to have a little chunk of the greatest nation the world has ever seen?

"The euro is so horrible people are piling into the dollar," says Rich Ilczyszyn, the founder of iiTrader.com.

Ilczyszyn says the dollar's baby-rally is more symbolic of the condition of currency alternatives than it is about the U.S. It's hard to dispute either point or see any huge risk of the trade reversing. Now that we have the catalyst all we need are ways to capitalize.

"Buy a few bucks," Ilczyszyn says rather logically. "You can do that with the CME currencies or you can sell Euro, which is essentially the same trade."

According to Hoyle a strong dollar is bad for almost any trade (save national pride), buying gas, or going abroad.

"We know when the dollar is up commodities are down," Ilczyszyn spouts.

But hold on! The trader and entrepreneur loves oil here and now. Citing geopolitical risks, specifically in Iran, and the tailwind of a risk premium in West-Texas-Intermediate crude, Ilczyszyn says there are "two ways to play oil: You're either long or you're out."

Another disconnect between what a strong dollar should mean and what's actually happening is gold.

Ilczyszyn says he's no gold bug, but can't ignore the fact that "investors are buying gold coins. They're buying gold bars and they're sitting on it. That's what's different from a few years ago."

As a practical matter, at least to traders, gold is trading off well defined trend and support lines. The former runs upward and currently resides at about $1,700 an ounce. Support is around $1,600. Commodity traders have been feasting on gold derivatives every time the barbaric metal has hit support for years and the trade continues to work, seemingly unperturbed by the greenback.

Still, nothing lasts forever. The dollar will resume trending lower, gold will meaningfully correct, and oil will spill lower (most likely as a function of slow global growth). None of which means anything to short term traders. Focusing on what's happening, rather than what should be, has been the way to play in 2011.

What do you see going in 2012 and how are you positioned to profit from it? Let us know in the comment section below or on our Facebook page.