How Low Can the Dollar Go?

Euro bills and U.S. dollars being exchanged
Euro bills and U.S. dollars being exchanged

The dollar can't seem to stop sliding, and on Friday it was so weak that the euro almost hit $1.50. Here's how to trade that currency pair.

Right now, all the conditions are in place for dollar weakness to continue, according to Andrew Busch, global currency and public policy strategist for BMO Capital, and Rebecca Patterson, managing director and chief markets strategist for J.P. Morgan Asset Management, Institutional. Busch told CNBC's Melissa Leethat Fed Chairman Ben Bernanke supported a weak dollar in his comments last Wednesday, and Patterson pointed out that low interest rates and strong risk appetite are encouraging Americans to "put money overseas, sell the dollar, and buy everything else."

Busch recommends waiting for a slight euro pullback, then selling the dollar at at $1.4650 with a stop loss at $1.4490, taking profits at $1.5125 or $1.5250.

Still, both Busch and Patterson note that dollar bearishness is extremely widespread, so any positive news or hints of policy changes could push the greenback higher.

David Woo, head of global rates and currencies research for Bank of America Merrill Lynch, cites just such policy changes to support his bullish view on the dollar. Woo argues that the end of quantitative easing will actually help the dollar, since money to buy Treasuries will have to come from somewhere else.

If investors take money out of stocks to buy Treasuries, Woo says, that will hurt stock prices, and "there's nothing the dollar likes more than falling stock prices." If the money comes from overseas, those investors will have to buy dollars to buy Treasuries. So either way, he says, the dollar could move up sharply from current levels.

The question investors should ask themselves, he says, "is if the Fed is not buying, who else is going to buy? And anybody who is going to be buying Treasuries, guess what? That's going to be good for the dollar."

In essence, Busch and Woo differ on the likely impact of QE2. The full conversation is right here, so you can decide what makes the most sense to you.


Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm.

"Money in Motion Currency Trading" repeats on Saturdays at 7pm.