Has the US Dollar peaked, or is this a correction?
Hello everyone! From today I will start sharing analysis on all sorts of markets, that will be shorter than usual and focused only on a specific pair/topic. Rather than trying to put everything together like I used to in the past, I will try to stay on point and condense the information. That's because readers weren't really going through everything as it was too much. If you enjoyed the old format or you wanna see how I used to write, below I've added most of my 2022 analysis. Even though it's older, some of that stuff is still useful, especially if you read it and try to think how we got here.
Now let's get into the DXY and answer the question on the title. My answer is that no, I don't believe the USD has peaked and that yes, this is a correction. Essentially what happened was that the USD got extremely overbought, and it trapped many late longs. In my opinion it needs some time to consolidate and chop in the 99-105 range before breaking higher. One thing I really need to clarify is that although I think the top isn't in, it absolutely could be. It's just that based on several things I take into account in my analysis, it hasn't.
Yes the US has huge deficits, too much debt, an overleveraged economy and therefore the USD is going to go down hard against many other currencies one day. However as most countries, corporations and ordinary people still need dollars in order to transact in the financial system, to pay debts and so on, the USD remains King. With inflation and interest rates going up, the demand for dollars went up as people scrambled to ahold of them in order to pay back their growing debts, bills and so on. What people also need to remember is that most of the debt in the world is denominated in USD, and therefore when interest rates go up and the dollar goes up, it creates a positive feedback loop where the dollar keeps getting stronger and stronger. Currently this loops seems to have broken as US bond yields have been trading lower for about 2 weeks now, something that has allowed for the DXY to pullback along with bond yields. What we need to remember that although other countries have strong economies and less debt than the USA, the USA remains one of them most self-sufficient countries out there. Many countries in a much worse position to it, and therefore their currencies could do a lot worse than the USD. In my next ideas I will go through all of these currencies separately, as each one of those has its own unique bullish or bearish case.
Finally, in terms of price action, I do expect the DXY to go down a bit more. Not much more before it bounces, but until I see it close below 99 or 105, I will be treating this as a range. No reason to take huge positions aiming for new 80 or 120, as the DXY has already had a huge move, and we are sitting in the middle of nowhere. Like I said above, it is possible that the top is in and after some chop it goes lower. Therefore I'd like to see some bullish price action before I step in again.
Now let's get into the DXY and answer the question on the title. My answer is that no, I don't believe the USD has peaked and that yes, this is a correction. Essentially what happened was that the USD got extremely overbought, and it trapped many late longs. In my opinion it needs some time to consolidate and chop in the 99-105 range before breaking higher. One thing I really need to clarify is that although I think the top isn't in, it absolutely could be. It's just that based on several things I take into account in my analysis, it hasn't.
Yes the US has huge deficits, too much debt, an overleveraged economy and therefore the USD is going to go down hard against many other currencies one day. However as most countries, corporations and ordinary people still need dollars in order to transact in the financial system, to pay debts and so on, the USD remains King. With inflation and interest rates going up, the demand for dollars went up as people scrambled to ahold of them in order to pay back their growing debts, bills and so on. What people also need to remember is that most of the debt in the world is denominated in USD, and therefore when interest rates go up and the dollar goes up, it creates a positive feedback loop where the dollar keeps getting stronger and stronger. Currently this loops seems to have broken as US bond yields have been trading lower for about 2 weeks now, something that has allowed for the DXY to pullback along with bond yields. What we need to remember that although other countries have strong economies and less debt than the USA, the USA remains one of them most self-sufficient countries out there. Many countries in a much worse position to it, and therefore their currencies could do a lot worse than the USD. In my next ideas I will go through all of these currencies separately, as each one of those has its own unique bullish or bearish case.
Finally, in terms of price action, I do expect the DXY to go down a bit more. Not much more before it bounces, but until I see it close below 99 or 105, I will be treating this as a range. No reason to take huge positions aiming for new 80 or 120, as the DXY has already had a huge move, and we are sitting in the middle of nowhere. Like I said above, it is possible that the top is in and after some chop it goes lower. Therefore I'd like to see some bullish price action before I step in again.
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