Next leg down for the US dollar, dollar weakness
US Dollar
We are entering a period of time in the financial markets where it is difficult to sustain trends. All over the world, monetary policy from the central banks has been mostly negative. Guidance from the Swiss National Bank, the Federal Reserve and from the European Central Bank has been that the economic slowdown in their respective countries and all over the world could move their hand to a form of action that would stimulate the economy. From lowering interest rates, lowering quantitive tightening measures to increasing quantitive easing. But what do the countries who have no more room to lower interest rates do? How much more of quantitive easing do you increase if you have already been increasing it for the last 7 years? Economies such as Switzerland and Japan could be in real trouble with the European Union not far behind. They have interest rates at or below 0%.
The United States policy makers where just barely ahead of the curve. They have raised interest rates while there was Trump mania and the tax cuts enacted by him. During the last two years of stock market stagnation they leveraged the tools at their disposal and now have wiggle room. They can lower interest rates from 2.50%, they can lower the portfolio tightening program to synthetically stimulate their economy. Also, they allow stock buybacks from corporate America which also acts as a way to float the market and increase stock prices while there is no real growth, creating a bubble in the process.
Looking towards interest rate decisions, investors are pricing in that the Fed will lower interest rates by the end of the year, with a combined probability of 73%. Considering economic data, trade balance is the most prominent indicator of domestic health. There was a sharp drop in imports of -$6.8 billion, indicating that there is a shortage of purchasing power and demand within the country.
Beyond the DXY
The equally weighted dollar average has the dollar pinned in the middle of a price channel it has been oscillating in for over 3 quarters. This is a result of the Euro and Pound giving up positions. If the next leg of instability for the world economy is to show itself in the near future, safe haven assets like the Swiss Franc, Gold, and the Japanese Yen will take the lead as a risk-off trades ensue.
We are entering a period of time in the financial markets where it is difficult to sustain trends. All over the world, monetary policy from the central banks has been mostly negative. Guidance from the Swiss National Bank, the Federal Reserve and from the European Central Bank has been that the economic slowdown in their respective countries and all over the world could move their hand to a form of action that would stimulate the economy. From lowering interest rates, lowering quantitive tightening measures to increasing quantitive easing. But what do the countries who have no more room to lower interest rates do? How much more of quantitive easing do you increase if you have already been increasing it for the last 7 years? Economies such as Switzerland and Japan could be in real trouble with the European Union not far behind. They have interest rates at or below 0%.
The United States policy makers where just barely ahead of the curve. They have raised interest rates while there was Trump mania and the tax cuts enacted by him. During the last two years of stock market stagnation they leveraged the tools at their disposal and now have wiggle room. They can lower interest rates from 2.50%, they can lower the portfolio tightening program to synthetically stimulate their economy. Also, they allow stock buybacks from corporate America which also acts as a way to float the market and increase stock prices while there is no real growth, creating a bubble in the process.
Looking towards interest rate decisions, investors are pricing in that the Fed will lower interest rates by the end of the year, with a combined probability of 73%. Considering economic data, trade balance is the most prominent indicator of domestic health. There was a sharp drop in imports of -$6.8 billion, indicating that there is a shortage of purchasing power and demand within the country.
Beyond the DXY
The equally weighted dollar average has the dollar pinned in the middle of a price channel it has been oscillating in for over 3 quarters. This is a result of the Euro and Pound giving up positions. If the next leg of instability for the world economy is to show itself in the near future, safe haven assets like the Swiss Franc, Gold, and the Japanese Yen will take the lead as a risk-off trades ensue.
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