USD Commentary
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Hope this idea finds you happily making a fortune today!
The epic rally in the dollar has displayed appreciation relative to all other currencies within the last 12 months.
Parity with the Euro: 1 Euro = 1 USD
Havoc for gold bulls:
But Zen? Isn’t a strong dollar good for the nation?!
‘Good’ is relative.
>A strong dollar makes imports cheap, and exports more expensive.
>This is the reason we have seen a steep drop in the rate of growth within the ISM Manufacturing Purchasing Manager Index.
>Currently at a value of 52.8, so yes we are in growth mode, but the rate of growth has sharply dropped
Let’s not forget the inflation woes domestically as purchasing power of consumers sharply drops.
Why is the dollar mooning?
>It is no different then the crypto yield farming bonanza of yesteryears. The market is chasing yield. However, unlike degens risking it all, the dollar is the global reserve currency and American bonds are backed by the greatest empire, the USA baby!!
>When the Federal Funds rate is raised by the Chairman Powell, the Government Bond Yield rises.
When the yield rises there is demand for the dollar to capitalize on this yield.
Bloomberg provided additional context through highlighting the ‘Dollar Milkshake Theory’ of Brent Johnson of Santiago Capital. Here is a summary:
1. All currencies are terrible fiat.
2. The dollar is slightly better because it’s the global reserve currency used the most. i.e. ‘the tallest midget’
3. When the Fed stops making dollars — the froth rises to the top of the “milkshake”— demand for existing dollars goes up.
Jamie Dimon (JPM) was in an interview forecasting the drop in growth last year, which ended up materializing. He said, with the inflation onset coming JPM were preparing in advance by essentially having a large position in the greenback. It sounds counter-intuitive to be long the dollar when inflation is high, however the logic is sound and the dollar has indeed outperformed all other currencies.
When it comes to technical analysis some are claiming we potentially are going to ‘double top’:
This would be an extremely bearish reversal if it were to materialize however, the underlying fundamental strategy the Fed is laying out would most likely have to change as well. The Fed at this point vocally intends to have further rate increases which will push yield, hurt growth and strengthen the dollar. Is a double top possible? Yes. Do I think it will happen? ...My crystal ball is foggy.
That is essentially asking, will the Fed take on a recession to wipe out inflation? I do not know. They are the masters of double speak (soft landing) right now.
If the dollar were to breakout we can see R3 would most likely be a pivot point.
Playing that breakdown in the dollar while being potentially long gold, equities or crypto could be lucrative in a short swing. Essentially, seek to make a tailwind out of a headwind.
Equities are likewise having a hard time dealing with this sky-high dollar.
Let me know your thoughts mates! If I missed something important share it with the community so we can grow together.
The epic rally in the dollar has displayed appreciation relative to all other currencies within the last 12 months.
Parity with the Euro: 1 Euro = 1 USD
- Canadian Dollar CAD -2.5%
- Australian Dollar AUD -6.1%
- Swiss Franc CHF -6.6%
- New Zealand Dollar NZD -9.8%
- British Pound GBP -11.6%
- Japanese Yen JPY -16.7%
Havoc for gold bulls:
But Zen? Isn’t a strong dollar good for the nation?!
‘Good’ is relative.
>A strong dollar makes imports cheap, and exports more expensive.
>This is the reason we have seen a steep drop in the rate of growth within the ISM Manufacturing Purchasing Manager Index.
>Currently at a value of 52.8, so yes we are in growth mode, but the rate of growth has sharply dropped
Let’s not forget the inflation woes domestically as purchasing power of consumers sharply drops.
Why is the dollar mooning?
>It is no different then the crypto yield farming bonanza of yesteryears. The market is chasing yield. However, unlike degens risking it all, the dollar is the global reserve currency and American bonds are backed by the greatest empire, the USA baby!!
>When the Federal Funds rate is raised by the Chairman Powell, the Government Bond Yield rises.
When the yield rises there is demand for the dollar to capitalize on this yield.
Bloomberg provided additional context through highlighting the ‘Dollar Milkshake Theory’ of Brent Johnson of Santiago Capital. Here is a summary:
1. All currencies are terrible fiat.
2. The dollar is slightly better because it’s the global reserve currency used the most. i.e. ‘the tallest midget’
3. When the Fed stops making dollars — the froth rises to the top of the “milkshake”— demand for existing dollars goes up.
Jamie Dimon (JPM) was in an interview forecasting the drop in growth last year, which ended up materializing. He said, with the inflation onset coming JPM were preparing in advance by essentially having a large position in the greenback. It sounds counter-intuitive to be long the dollar when inflation is high, however the logic is sound and the dollar has indeed outperformed all other currencies.
When it comes to technical analysis some are claiming we potentially are going to ‘double top’:
This would be an extremely bearish reversal if it were to materialize however, the underlying fundamental strategy the Fed is laying out would most likely have to change as well. The Fed at this point vocally intends to have further rate increases which will push yield, hurt growth and strengthen the dollar. Is a double top possible? Yes. Do I think it will happen? ...My crystal ball is foggy.
That is essentially asking, will the Fed take on a recession to wipe out inflation? I do not know. They are the masters of double speak (soft landing) right now.
If the dollar were to breakout we can see R3 would most likely be a pivot point.
Playing that breakdown in the dollar while being potentially long gold, equities or crypto could be lucrative in a short swing. Essentially, seek to make a tailwind out of a headwind.
Equities are likewise having a hard time dealing with this sky-high dollar.
Let me know your thoughts mates! If I missed something important share it with the community so we can grow together.
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