Forex trading: Did US Special Forces just rescue the dollar?

Forex traders push dollar down to a three-year low against a basket of currencies. But one trader says the US show of military dominance could shore up the dollar on the Forex.

Athar Hussain/Reuters
A man counts $100 US bills at a money changing booth in Karachi, Pakistan, May 2, 2011. With the successful operation against Osama bin Laden in Pakistan, the US has reasserted its military dominance. Will that translate to the dollar, which dipped to a three-year low against foreign currencies in Forex trading May 4, 2011.

By Drew Sandholm,

With the death of Osama bin Laden, U.S. forces ended a nearly 10-year worldwide hunt for the mastermind of the Sept. 11 attacks and boosted the U.S. dollar's reserve currency status, too, trader Steve Cortes said Wednesday.

"History shows us that the country with the strongest military is always the reserve currency," said Cortes, founder of Veracruz. "I think the ability of those heroes, of SEAL Team 6, to project power globally shows us that U.S. military is uncontested in its dominance and I think the currency will re-assert accordingly."

The dollar hit a three-year low against a basket of currencies on Wednesday, as the euro gained to nearly $1.50. Being as the dollar has taken a "huge hit" over the past few months, Cortes thinks there's now a lot of opportunity in being long the greenback.

"Wave the flag and buy the U.S. dollar," Cortes said, adding he thinks the dollar will soon hit its base with the end to the U.S. Federal Reserve's bond-buying program, commonly referred to as quantitative easing or QE. "It's very lonely to be a dollar bull right now, but I think it makes sense."

Cortes said he's short the euro into the European Central Bank's meeting scheduled for Thursday. The central bank is expected to keep rates on hold. It raised rates in April.

Kanundrum Capital founder Brian Kelly, on the other hand, is short the dollar and long the euro. Kelly plans to keep that trade on through the ECB's meeting Thursday. He noted that the likelihood of Portugal getting a bailout will "pave the way" for the ECB to raise rates, adding that inflation is running "much hotter" in Europe than most expected.

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