US Dollar Eyes Trump Speech, Beware of Month-End Rebalancing

We can expect an historic correction in the US Dollar following a Trump presidential inauguration. The US Dollar has been moving in a narrow range for more than six months. Although the US Dollar is a global currency, it is not a naturally strong currency that moves against economic forces, or against a stronger currency.

In this article, I am going to present the reasons why the US Dollar is headed toward a historic correction. We should expect an important rebalancing of the global economic and financial system at the month-end following the Trump inauguration.

The Trump transition team, from top to bottom, is highly unqualified. To appoint someone with no background in economics, who are unable to adequately address the national debt and deficit, and the fact that there are now huge numbers of bankruptcies and businesses going out of business, is a recipe for disaster. It will lead to enormous instability, job losses, and, of course, deflation.

The incoming administration has, so far, been pretty vague on its plans for our economy, and what kind of economic activity they plan to increase. They have had a couple of months to prepare their Economic Statement, which was issued on January 13th. It does not look good.

There is little doubt that the Federal Reserve will raise interest rates at their next meeting on December 14th. There are two reasons for this. First, the threat of a large drop in asset prices has been averted. Secondly, the Federal Reserve has decided that the stimulus programs put in place by the Obama Administration have largely helped the economy.

The Fed must remain concerned about inflation, which is around the corner, and must also keep its hands off the gold market. The next two Fed meetings will be very important. The US Dollar is headed for a big correction, but only if the Fed does not do something to stop it.

The biggest key reason that this correction is coming is because of the fact that China is now taking on a much larger role in the international trade of commodities. Because China is a large producer of commodities like steel, and manufactured goods, it is now playing a much bigger role than it did just a few years ago.

Unfortunately, the US exports of manufactured goods to China, and the large number of jobs they support, are now being threatened by their increasing demand for our goods. It does not look good for them. I would not expect anything to change the momentum of the current rally in the Chinese Yuan, because China does not want to lose their position as the world’s largest importer of goods and services.

We are seeing a mini-crash in the FX markets due to the threat of economic weakness in Europe and Japan, as well as a huge amount of forex market liquidity. All the technical indicators are pointing to massive forex market buying, which is what is currently happening.

This makes sense to me, because historically the US Dollar is always very weak against the euro, and it has never been a good idea to own the euro. So it makes sense that the USD could fall, and it makes sense that gold will go up.

Whether or not the Trump administration helps or hurts, will depend on whether or not the new administration is able to contain the further slide down in the dollar. As long as the economic fundamentals and stability of the dollar are not restored, then we should expect a big correction in the future.

If you have been waiting for the right time to buy gold, now is the time to do it. Please consider all this in 2020.