2020-06-19 • Updated
Whenever there is a slightest wind blow in the economic environment, investors run for safety and end up with piles of the USD in hand. The world is used to perceive the US dollar as a universal safe haven and doesn’t seem to doubt the reliability of the American currency in this sense. But what if this was to end soon? There are opinions that this is one of the very possible scenarios in the nearest future.
Fundamental changes do not come just out of the blue, they “suddenly” emerge as a result of fundamental processes. Therefore, to estimate the probability of any fundamental change, one has to estimate the strength of factors possibly leading to that change. Now, what makes the USD the global reserve currency? The same what keeps any currency running – demand. If people need a currency for transactions, reserves, payments, loans, etc., it will enjoy high value. Otherwise, a low-demand and a barely used currency may not only lose value but fall to non-existence.
Therefore, it is the global demand that keeps the USD on its throne. And why there is global demand for the American currency? First of all, there is an undeniable global presence of the American products of any kind, for which, logically, their American producers demand payments mostly in American currency. Second, to make this currency available to international entities, American and international banks are generous enough to provide loans and all kinds of credit facilities in USD so that the world has enough USDs for their use. Third, the American economy is in fact the first-ever precedent of a truly global economy, also being the biggest and the mightiest. So basically, the US economic machine is perceived as too big to fall, and hence utterly reliable in the long-term by the people and institutions around the world. Combined together, these three main factors make it clear that there is no other currency possibly comparable to the USD. Or is there?
Truly challenging the global domination of the American economy and the USD was impossible for China just some 20-30 years ago. Now, on the other hand, not only Chinese products are in all parts of the world pressing on American production, the latter itself is now reliant on China. American companies often locate their production and supply chain hubs in China and use its labor force. Consequently, the USD gets pressed by the CNH.
In addition to that, with the presidency of Donald Trump, the American global economic strategy became more defensive rather than offensive. In other words, the US is slowly withdrawing from the international arena – and not only economically, but politically and militarily, although it seems otherwise at times.
Thus, while China is openly expanding, the US is gradually withdrawing. Add to that a hugely increased fiscal deficit resulting from the anti-virus financial measures, eroded savings, recession – and here you are with reasonable doubts about the supremacy of the USD.
The technical perspective for the USD/CNH doesn’t look like necessarily reversing downwards. However, neither does it offer sure signs of upside or even sideways. The very long-term perspective shows how the USD shifted upwards from costing 6 CNH to 7 during the last decade, with sharp (from the strategic point of view) fluctuations on the way. The very last episode in the monthly chart shows a rounding curve with the latest high lower than the previous one – that should suggest a possible continuation of a downtrend.
The daily chart shows a similar likelihood of bearish movement – probably, the support of 7.00 will eventually be tested for further downwards potential. As per Donald Trump, weak USD is beneficial for the US exporters – that increases to the possibility of USD/CNH getting down to and below 7.00. However, going much lower than that may damage the US economy more than support it. As these moves may result from fundamental shifts discussed before, these factors should become more visible in the coming months. Therefore, follow news and prepare for possible downturns with USD/CNH.
Crude oil futures surged on Monday due to disruptions in Russian refining capacity caused by Ukrainian drone strikes and Moscow's decision to cut output to comply with OPEC+ targets. The West Texas Intermediate (WTI) contract for May settled at $81.95 a barrel, up $1.32, while the Brent contract for May settled at $86.57 a barrel, also up $1.32. Russia instructed...
Bearish scenario: Sales below 80.00 with TP1: 79.60... Anticipated bullish scenario: Intraday purchases above 80.70 with TP: 81.50...
Brent oil is currently on a bullish trend, facing resistance near $84 and supported by the 200-day EMA. Breaking above this level could lead to a climb towards $90. Short-term support is observed around $80, backed by the 50-day EMA. As summer approaches and travel increases, crude oil tends to benefit from seasonal patterns. Despite temporary setbacks, buying...
Jerome H. Powell, the Federal Reserve chair, stated that the central bank can afford to be patient in deciding when to cut interest rates, citing easing inflation and stable economic growth. Powell emphasized the Fed's independence from political influences, particularly relevant as the election season nears. The Fed had raised interest rates to 5.3 ...
Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.
Your request is accepted.
A manager will call you shortly.
Next callback request for this phone number
will be available in
If you have an urgent issue please contact us via
Live chat
Internal error. Please try again later
Don’t waste your time – keep track of how NFP affects the US dollar and profit!
|
