US $ Smoked. Game Over? Is The Yen Telling?
The US dollar is getting whacked today against the euro, yen, and pound...but in this risk-off day where stocks are getting clobbered, the dollar is holing up against the commodity currencies...but looking at the US dollar index chart weekly basis suggest if it doesn't hold 9923 support, there could be a long way to fall even if only a correction...There are decent rationales to suggest the dollar bull market is over--disappointment on the Trump agenda, global central banks playing catch-up on rates, etc.; or an expected correction until real money flow pours into the US on Trump agenda implementation and tax holiday for pools of cash held by US companies offshore...we shall see...
...but over the intermediate-term, measured in months, maybe the $-Japanese yen relationship will show the way. A break of critical support at 111.57 in USD/JPY, tested today, suggest the yen goes lower and maybe a lot lower...alternative targets to 108.43; then 104.05 on this view...stay tuned...
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I don't believe it is about financing deficits that drives the dollar. It is about real money flow (from domestic sources on said tax holiday, foreign direct investment, and hot money on yield differential). This can be self-feeding and would be very dollar positive despite deficits. As to trade war; the US wins a trade war against competitor given its local demand being so relatively strong. And the dollar likely rallies in a trade war on safe haven flow worldwide into US Treasuries. Thank you Moon Kil Woong.
Don't expect large flows to the US on tax holidays. In fact, the opposite has happened as foreigners pull money out of the US. The dollar will continue to show weakness until inflation drops, growth rises, or the Federal Reserve raises rates faster than inflation rises.
If Trump starts a trade war all bets are off. As everyone knows, the US can't finance its own deficits without considerable hardship.