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USD hegemony is alive and well





The price action over the last two days has been very favourable to the trend followers. The Detma ICP model trend betas are showing the price action as beginning to be on the extreme side for this cycle.  This is reflected for all EUR pairs (apart from EURGBP) in the chart below.


As hard as it is to go against the current trend, there are many traders that feel strongly that the USD will fall as a consequence of the U.S. inflating themselves out of the ludicrous debt they are in.  This will happen - the only question being when?

From the European point of view, and indeed from the point of view of all major economies the question must be: "how do we break free from the stranglehold that the USD has over our economies?"  As Henry C. K. Liu so aptly points out, sovereigns outside of the U. S. should charge their exports in their own individual currencies.  As things stand, the sole purpose of global trade is to raise dollars to pay back dollar denominated debt.  The sole purpose of global trade is to produce goods to be swapped for U.S. Dollars printed by the Federal Reserve.  Countries should not borrow their capital requirements externally in dollars, rather they should raise their required capital from government credits.

Currency values should revert to their previous purchasing power parity status (PPP).  Their value, in respect to other currencies, should be a factor of a country's productivity and not merely a factor of how many dollars a country's central bank holds as reserves. 

One thing that is now glaringly obvious to the world is that the USD no longer deserves the status of reserve currency.  This will have to change whether the U.S. agrees or not.  Perhaps then, the inevitable  WODCA agreement I have spoken about before, should be part of a package that also replaces the USD as a reserve currency with some other internationally agreed to trade based model. 

Position wise, after wrongly hitching my wagon to an effective ECB defense of the Euro, I have been playing defense with a straight bat the last couple of days.  Right now I'm trying to balance USD strength caused by this existing and unreasonable USD hegemony with a view that the USD will be inflated out of existence at some stage.  But from where is a bug bear.

Frank




Disclosure: No positions