A few words about the abnormality of the current dollar value

3 окт. 2019 г.

The current dollar value (the highest value since the spring, 2017) cannot be called abnormal otherwise. We will try to explain why this is so and show why the scale of illogicality has reached a critical point, and the dollar is simply doomed to decline.

To begin with, the Fed has already lowered interest rates twice in 2019. For the national currency, this is usually more than enough to begin to form a downtrend. That the dollar has not begun to decline is an anomaly. But it cannot go on like this for a long time, especially since, according to traders, already at the next meeting in late October with a probability of over 75%, the interest rate will be lowered again.

As for the Fed, one cannot but note the chaos taking place in the US repo market. A sharp increase in rates in this market has led the Fed to flood the market with money. They started with $ 75 billion per day but very quickly switched to injections of $ 100 per day. The money market is flooded with money (in fact, we are talking about an increase in supply on the market), but dollar prices are rising. Another inconsistency.

We cannot but note the general deterioration of the US economy. This is the GDP growth rate (in the second quarter 2% but the first quarter 3.1%, that is, the growth rate decreased by a third), this is the state of the labour market (the number of new jobs created in the USA has been steadily declining recently ), this is the latest data on the ISM index in the US industrial sector. The index fell to the lowest level since June 2009 - 47.8 points. Recall that an index exit below 50 means decrease inactivity. Under normal conditions, this would provoke a decrease in the national currency. But the dollar has been growing recently.

But the economy is far from the only component that affects the dollar value. Impeachment proceedings against President Donald Trump began last week in the United States. The scandal flared up. That is, we have a serious domestic political crisis. This has not happened for several decades. How must the US dollar react against this background? Strengthens. Illogical.

As you can see, everything that is happening is illogical and anomalous. One of the features of the anomalies is their relative fragility. That is, they are short-lived. Therefore, the current price of the dollar is, in our opinion, one of the last opportunities to sell it more expensive. If on Friday the NFP data is weak enough for the markets to confirm their concerns, the dollar will begin to form a full-fledged correctional movement, which will have a great chance of developing into a full-fledged downtrend. So sell the dollar before it is too late. The window of opportunity closes.