"If we have a recession - that is not my base case, but I definitely think there's a real risk of it and we should think about it - I do want to be long the dollar," Patterson says. The question is what to trade it against. Mexico is particularly interesting, she says, because close to 80% of its trade is with the U.S. and it is a play on oil - nice because oil prices tend to fall during recessions.
On the other hand, Patterson thinks it's more likely that we will avoid a recession and muddle through. In that case, she says, "we could see some interesting buying opportunities." She especially likes the Singapore dollar for its strong ties to China and its low dependence on foreign capital flows, both of which would provide some protection against economic weakness. She recommends selling the U.S. dollar against the Singapore dollar at 1.21 with a target of 1.17 and a stop loss at 1.2425.
In technical terms, Todd Gordon, co-head of research and trading at Aspen Trading Group, says the Singapore dollar is nicely positioned to rise against the greenback. And Andrew Busch, global currency and public policy strategist for BMO Capital, notes that China's central bank just allowed its currency to rise at the fastest rate in three years.
You can watch the whole discussion in the video clip.
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