A friend is planning to travel in Europe in June and, knowing my love of currency speculation, asked that I ensure that the euro would drop significantly against the dollar between now and the trip.
Ever since I have been furiously waving my magic forex wand, but to no avail. Would that I had bought my wand at Diagon Alley rather than on sale at Wal-Mart.
My magic having failed, I next turn to Plan B: Dollar cost averaging.
For vacationers, who unlike traders must actually take possession of their currency, dollar cost averaging offers the best way of mitigating exchange risk in light of an unknowable future.
For the euro and the dollar, I would do it like this:
* Exchange a third of the money now.
* Do another third after May 18, when the European Central Bank's Governing Council meets. What they do to rates, if anything, and the implications of their statements can have a huge impact on the euro's level calculated in dollars.
* And do the final third after June 22, when the American central bankers -- the Federal Open Market Committee -- announce the results of their two-day meeting.
I consider dollar-cost averaging to be as close to a no-lose situation as exists in the real, non-magical world.
It eliminates the extremes. The traveler will get a better deal for euros in the face of a steep dollar decline, although a somewhat worse deal in the face of a sharp dollar appreciation. It will never be as bad as it could've been, nor as good.
The happy traveler can always say, "Well, it could'a better, but it sure could'a been worse," and embark for Europe with no regrets.
The alternative is to buy the euros all at once and cross your fingers -- sort of like putting all your chips on a single number and giving the roulette wheel a spin. Lots of luck with that.
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