Let me show you something…
The above is a snippet of a note from Goldman Sachs where they lay out five possible scenarios for the Dollar ahead.
They are all bullish USD.
Now, before we get into the conversation remember…
These are SCENARIOS.
So potential macro environments that could take place.
These are just meant to give you some insight and perspective, so you know what’s happening when one of these scenarios starts to unfold.
If the global economy takes a downturn, and that requires central banks to cut rates aggressively that’s… bullish USD.
Interest rates are secondary when global growth is taking a hit.
Risk sentiment rules.
And safe havens such as CHF, JPY, and USD in that case would dominate.
If something goes wrong geopolitically across the world, all paths there would lead to demand for?
Same reason as the growth scenario…
Safety. When things get risky, people run to CHF, JPY, and USD.
And GOLD too, of course.
Yes that’s right.
It’s an election year.
And Trump is leading the polls.
As the election gets closer the market will start to price in his victory if he keeps leading, and that’s… you guessed it, bullish for the Dollar.
In one word: tariffs.
In two words: China tariffs.
In three words: China Europe tariffs.
Yes. First thing Trump will do if he gets in office is hike tariffs on China’s exports, and sprinkle a few against Europe too.
The Dollar in that scenario too is the weapon of choice.
What the ECB has to do with the Dollar?
Keep in mind:
Lower rates in Europe mean investors will look for higher yields elsewhere, like the US. And lower rates in Europe mean a weaker EUR, which makes up more than half of the DXY. So, a weaker Euro means a stronger Dollar.
Simply the US economy keeps printing strong, and inflation picks up a little or stalls ABOVE the FED’s target.
That’s… bullish for the Dollar.
And by the way, that’s the ONGOING theme right now, and the most likely to keep going short term.
Just look at the CPI and PPI data this week.
So with all that said…
The path of least resistance for the Dollar is?
Medium to long term type of view.
Let me know if you find these types of more indepth macro posts useful.
Because your engagement lets me know what you like so it’s valuable to know how to keep improving the thread with more proper educational insights along the way.