Currency Crisis Coming?

Wednesday, 17 Dec 2008 | 5:49 PM ET

The dollar tumbled on Wednesday, hitting its lowest in more than 13 years versus the yen and also falling against the euro, one day after the Federal Reserve's historic rate cut.

As you likely know, the Fed on Tuesday cut its federal funds rate target to a record low, setting a range of zero to 0.25 percent compared with the previous level of 1.0 percent, and said it would use "all available tools" to battle recession.

The massive cut further diminished the greenback's yield appeal against the euro, which has registered a staggering 11 percent gain so far during the month.

"The underlying story in the FX market remains yield. The fact that the Fed made this major policy move yesterday really changed the balance of power towards the euro for the time being," says Boris Schlossberg, director of currency research at GFT Forex.

According to strategic investor Dennis Gartman the Fed is doing exactly what needs to be done. The dollar might be getting weak but it's not collapsing.

He tells us, "(The Fed) has led the rest of the world and Europe has no choice but to follow. I expect that ECB Chief Trichet will do the same thing and cut rates aggressively. We just went down the road first."

So what then is Gartman's trading theory?

Currency Crisis Coming?
The Fed shift has sent the dollar reeling, with Dennis Gartman, The Gartman Letter and the Fast Money group.

Gartman's Currency Trade

"If you have to be long a currency, I’d get long Canada’s dollar or Australia’s or New Zealand’s dollar -- those outside the United States," counsels Gartman. "And I’d own a little gold just in case, but I would not have a speculative long position."

What do you think? Tell us now. Are we heading for a currency crisis?

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Trader disclosure: On Dec. 17th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Macke Owns (MCD), (MSFT); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (ENER) Call Spread; Najarian Owns (UYG) And Is Short (UYG) Calls; Finerman's Firm Owns (MSFT), (IBB); Finerman's Firm Owns (OIH) Puts; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (VNO), (FCE.A), (USO)

CIBC Gartman Index Is Long Gold;
CIBC Gartman Index Is Long Australian Dollar And Is Short Euro;
CIBC Gartman Index Is Short Crude Oil And Is Long Natural Gas

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