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Currency market: US Dollar Index, the political and economic system and exports

The current historic market story for the generations is the political battle for western governments to continue capitalism or switch to an authoritarian system. The United States leads the way with Democrats, Black Rock, Vanguard and state street and control of 20 trillion Vs the Republicans and Trump to convert the system back to its capitalistic roots. The Democrats are currently victors particularly as they secured support from major companies.

Democrats seek support, direction and control of every dollar while Trump and Republicans pursue capitalism to spread the wealth.

Central banks up next to fight the battle of high Inflation and raise interest rates but not cause economic calamity nor involve themselves nor take sides in the political hostility. One mistake by Powell then the Fed and  the independence of central banks will be lost to control of the political system. And never to return.

The Fed's raise interest rate policy forced  DXY long past 50 year averages and non USD pairs to lowest levels not seen in decades.

The next battle if one existed is control of export markets as once existed in the 1930's under free float currencies. Subordinate to  the scenario of high inflation, low GDP and lowest exchange rates in decades, nation economies are prime to regain lost revenue from high inflation and low GDP. Now we have a true economic conflict between nations regardless of the capitalism vs Authoritarian victors.

DXY achieved 110.70 highs and 85 pips from vital 111.55. Count EUR/USD at minus 85 pips and historic bottom is located at 0.9811.

GBP/JPY at 165.00's approaches 168.00's highs from the break at the 5 year average at 146. Since February, GBP/JPY traded 146.00 at the 5 year average to 168.00 highs.

EUR/AUD watch vital 1.4740. GBP/AUD is the better trade long. USD/JPY and JPY cross pairs trade in the stratosphere. Add 85 pips to today's USD/JPY then highs are located at 144.82.

EUR/NZD trades lower by break at 1.6332 while GBP/NZD trades higher by break at 1.9163. Wide divergence exists between GBP/NZD and EUR/NZD.

Best trades to finish the week and heading into next are long EUR/USD and EUR cross pairs and short USD/JPY and JPY cross pairs.

Author

Brian Twomey

Brian Twomey

Brian's Investment

Brian Twomey is an independent trader and a prolific writer on trading, having authored over sixty articles in Technical Analysis of Stocks & Commodities and Investopedia.

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