The U.S. Dollar Index (USD) has peaked.

That’s the same comment I made about a month ago. And so far, as regular readers have correctly pointed out, the buck hasn’t done anything.

The U.S. Dollar Index closed Friday at $94.57. That’s just about where it was trading last month when I claimed that it had peaked.

So, I haven’t been proven right yet. But I will be.

You see, I still think it’s going to be a rough summer for the dollar. Let me explain why…

Over the past month, our trading partners – most notably China and the European Union – have been attempting to devalue their currencies in response to trade tariffs being imposed by the United States. One way for a country to get around the higher cost of tariffs is to devalue its currency – thereby lowering the price in U.S. dollars so that once the tariff is imposed, there’s no real price difference.

So – in theory – since other nations are devaluing their currencies, then the U.S. Dollar Index should rally.

In practice, though, the market discounts these actions. Currency traders anticipated the retaliatory devaluations of foreign currencies months ago when the Trump administration first started talking about imposing trade tariffs. That’s why the U.S. Dollar Index rallied so sharply from mid-April though mid-June.

That’s also why the dollar index hasn’t rallied even more over the past month – even though the threat of increased tariffs is even greater. The market already discounted the event.

Now, let’s think about what actions the market is going to start discounting next. What are the chances the trade war rhetoric gets worse?

That’s hard to imagine, since President Trump has already suggested imposing tariffs on all of the $500 billion worth of goods the U.S. imports from China every year. And it’s already understood that China will devalue its currency in order to combat those tariffs.

The better question is… What are the chances the currency markets will start to anticipate a resolution to the trade wars?

Remember, financial markets discount these events. The dollar index is likely to start falling well ahead of the tariff issue being resolved.

I suspect that’s likely to happen sooner rather than later.

Best regards and good trading,

Jeff Clark

Reader Mailbag

Have you profited trading the dollar these past few months? Or are you sidelined… waiting for a move one way or the other?

Send us an email about your experience right here… and don’t hesitate to shoot us a question or suggestion, either.