Forex and commodity traders will want to watch closely the economic data coming out at 3 p.m. EST Tuesday. At that time, the market will receive Consumer Credit (m/m) numbers. Those numbers could push the dollar, and inversely affect commodities, including gold, silver, and oil.
The forecast is for 5.2 billion, a decrease from 6.0 billion. A number above 5.2 billion would show strength in the economy and could result in an increase for the dollar and a corresponding decline in commodities. A number below 5.2 billion would show economic weakness or lowered consumer confidence — both bad signs for the embattled greenback.
Overall, consumer credit data is correlated with consumer spending and confidence. Rising debt levels are a sign that lenders feel comfortable issuing loans, and that consumers are confident in their financial position and eager to spend money.
Action ItemsBullish: Traders who believe the consumer data will lead to an increase in the dollar might want to consider the following trades:
- PowerShares DB US Dollar Bullish Fund (NYSE: UUP): This ETF is designed to replicate the performance of being long the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. A strongly moving dollar could do well in this circumstance, moving this ETF up.
- EUR/USD: This could be an interesting trade to take, in particular if things go the dollar's way. Being long on the dollar here would require a leap of faith that the Consumer Credit numbers are positive and that there is not offsetting good news in Europe. It's riskier, but potentially profitable if done right.
Traders who believe the consumer data will lead to a decrease in the dollar may consider taking positions in the following:
- SPDR Gold Trust (NYSE: GLD): This ETF tracks the price of gold bullion, and could go up as the dollar goes down. The theory here is that consumers fleeing the dollar seek a safe place, and there are few commodities as safe, long-term, as gold.
- PowerShares DB US Dollar Index Bearish Fund (NYSE: UDN): This ETF is designed to replicate the performance of being short the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. Rather than pick one currency pair to go short against, this ETF lets you play all those at once.
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