Hey Trader,

Right now is a GREAT time to take a trip to Europe …

At least if you’re comparing the relative strength of the dollar vs Euro.

Actually, the dollar has been on somewhat of a hot streak for quite a few months now …

But I saw some Big Money cross the tape earlier this week that stopped me in my tracks.

From the looks of things …

Big Money might be betting AGAINST the dollar?!

Let me break down what I mean.

It all started with this trade that crossed the tape during Monday’s trading session.

And I mean, check out the size of this thing!

Blocks of 142,494 … 125,000 … 50,000 … 25,000 … all within 20 minutes!

All of these trades were targeting the same contract: the EEM August 43-strike call.

What the heck is EEM?

iShares MSCI Emerging Markets (Ticker: EEM) looks at more than 800 emerging market stocks, specifically large and mid-sized companies in “emerging markets,” like Hong Kong, Taiwan, Brazil, Saudi Arabia, India, South Africa … you get the picture.

EEM been in a steady trend lower for quite a while now, with the shares creating a series of lower highs and lower lows since trading at $54.65 last June.

After Monday’s trading session, EEM closed at $38.90, tacking on 0.7% for the trading session.

And it was that same trading session that saw the 342,494 43-strike calls cross the tape.

Even with the low price of $0.09, these trades required a total outlay of $3,082,446, and tell me Big Money is looking for EEM to tack on about 11% or more over the next four weeks.

Now, you might be thinking, “what do emerging markets have to do with the U.S. dollar?!”

Take a look at these six-month charts of EEM (top) and Invesco DB U.S. Dollar Bullish Fund (Ticker: UUP) (bottom):

Notice anything?

They look about opposite, don’t they?

While EEM and UUP may not exactly have an inverse relationship … it’s pretty darn close.

Why?

Simply put: a strong dollar is bad for international markets.

As the Fed raises rates, the dollar becomes more attractive than other currencies with lower yields, hence more buyers step in, raising the value of the dollar.

With the U.S. dollar as the dominant world currency, that means a lot of trade is done in USD.

But as the dollar gets stronger, it makes imports (both to and from other countries) more expensive, which weighs on companies that depend on overseas markets for their revenue (such as, say, those in EEM). 

It also erodes the purchasing power of other currencies, gives unfavorable exchange rates to non-USD currencies, and exacerbates inflationary pressures on smaller, less stable currencies.

And frankly, the dollar move over the last few months has been astounding.

So I don’t find it too hard to believe that the dollar could potentially be topping out …

And according to the Big Money flow above, we’re looking at EEM upside around $43. 

Personally, I think if UUP drops all the way to $27 (it’s currently around $28.60), we could see EEM go as high as $46!

So if you’ve been planning an exotic vacation in foreign lands, with your purchasing power buoyed by the strong dollar …

Well, you might want to book your tickets now, because August expiration is a few short weeks away!

Your Only Option,

Mark Sebastian