By IM Vronsky – Re-Blogged From http://www.Gold-Eagle.com
As all monetary students well know, the value of a country’s currency is determined by many factors. Among these are Fundamental Factors, Technical Factors and Pure Political Policies (the latter based upon the immediate “needs” of the politicians in power). Consequently, it is a daunting task to ACCURATELY forecast the future value of a nation’s currency vis-à-vis other currencies.
As I am NOT a politician, I will only focus upon the US Dollar’s Fundamentals and the Technical Factors in an attempt to forecast the future value of the US greenback.
- The US$ has long been the world’s universal Reserve Currency.
- The Euro is well-nigh imploding as the Euro Union is close to collapsing.
- Banks worldwide are close to bankruptcy.
- The China Factor
- Rising US Interest Rates to Fuel Greenback Higher
- Based purely upon the Technical Analysis of US$ charts.
The US$ has long been the world’s universal Reserve Currency
Generally speaking, a country’s foreign exchange rate provides a window to its economic stability, which is why it is constantly watched and analyzed. After World War II, the international financial system was governed by a formal agreement, the Bretton Woods System. Under this system the United States dollar was placed deliberately as the anchor of the system. Ergo, the US$ assumed the role of the world’s universal Reserve Currency.
The Euro is well-nigh imploding as the Euro Union is close to collapsing
The Euro Union was doomed since birth. It was and remains a utopian dream to hope that so many nations with grossly dissimilar characteristics could ever compatibly thrive in lasting harmony. Consider all the material differences. Several different languages are spoken in daily life. Personal customs are vastly different. Business ethics are widely diverse. Economic development in some cases were oceans apart. Even their cuisine ranges from bland to exotic. But perhaps the biggest dissimilarity was the intrinsic value of each country’s currency…before all adopted the Euro as the common currency of the Euro Union (EU).
The Euro Union’s so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) are today literally bankrupt…merely surviving economically due to the generosity of German Bank loans. One might say the PIIGS are in a way contributing to the demise of Germany’s premier Deutsche Bank and Commerzbank, whose stocks in recent years have plummeted in price by -84% and -98%, respectively!! And most recently, the UK has hinted it will abandon the Euro Union, which will indubitably be the coup de grâce for the EU.
Needless to say, the implosion of the Euro currency will cause a panicked stampede of millions of Europeans to the US dollar…thus vaulting the latter’s value into the stratosphere.
Banks worldwide are close to bankruptcy
The international banking system is a House of Cards (at best) and a rickety, fragile, unsound, unstable, weak and unsound Garage for Storing Cash (at worst). As this becomes common knowledge worldwide, there will be a mad scramble of global investors and depositors fleeing their banks and weak currencies to the safe haven of the US greenback. Consequently, the exploding demand for the US$ will probably catapult its value to all-time historic levels.
The China Factor
Echoes from Beijing imply The Peoples Bank Of China would like to devalue the Renminbi (yuan) in order to arrest the current stock market crash. In the period 2014-2015 the Shanghai Composite Stock Index sky-rocked with accentuated irrational exuberance by soaring hyperbolically +160% in a mere 13 months. But since mid-2015 China stocks have crashed -50%. In mid-2015 I called the market top in the Shanghai Composite Stock Index (Click following links)
Indeed, history is testament that nearly vertical levitation in stock prices is always followed by vertical free-fall crashing stock values…as greed virally mutates into fear and panic. Understandably, Beijing needs to stem the hysterical run on its stock market by dramatically increasing liquidity via the devaluation of the Renminbi. Consequently, it is inevitable that Beijing’s Renminbi Currency devaluation will bolster the value of the US dollar.
Rising US Interest Rates to Fuel Greenback Higher
The dollar is almost universally expected to appreciate when US interest rates start rising, especially because the EU and Japan will continue easing monetary conditions for many months, even years.
Technical Factors – Based Purely Upon Technical Analysis Of US$ Charts.
Whereas all the above Fundamental Factors are extremely difficult to quantify, regarding timing and intensity, Technical Analysis of charts is A VIRTUAL MAP showing where you have been…and more importantly, where you might be headed. Here following are a few forecasts based upon different Technical Indicators.
Chart 1 (2002-2016) shows a Bottoming Arc Pattern with breakout. The corresponding Price Objective for the US$ is 105. Supportive of this bullish forecast is the multi-year rising of the RSI Indicator.
Chart 2 (1980-2016) shows a phenomenal bullish 30-Year Trend Upside Breakout…accompanied by a 4-Year Breakout of a triangle pattern.
Chart 3 (1980-2016) also shows the phenomenal bullish 30-Year Trend Breakout…accompanied by a bullish 6-Year Breakout of a BULLISH Inverted Head&Shoulders pattern.
Chart 4 (2002-2016) also shows a bullish 6-Year Breakout of an Inverted Head&Shoulders pattern…subsequently accompanied by a bull flag with a triggered Breakout. The Price Objective of the Bull Flag is 120.
Chart 5 (2014-2016) demonstrates how much the US$ has risen in value (i.e. percent) vs four of the world’s major currencies during the past two years. Moreover, there is nothing on the horizon which might deter the dollar’s continual REVALUATION against the Japanese Yen, Chinese Renminbi, UK Pound…and especially the Euro. Indubitably, the US Greenback should continue to appreciate…and thus remain the world’s Foreign Reserve currency for the foreseeable future.
It is eminently obvious the above Technical Analysis show clear evidence that the long-term path of least resistance for the US Greenback is DECIDEDLY UPWARD. Nonetheless, we must all be constantly aware and leery of what the often illogical politicians might do to temporarily divert the irresistible force of a rising US Dollar. However, I do NOT believe clueless politics alone can hold the US greenback down…and that includes any future political birdbrained action in the USA and/or CHINA.