Here we go again…<\/p>\n
On June 21, readers were alerted to a bearish signal in the U.S. Dollar Index (DXY)<\/a>.<\/p>\n Since then, DXY has declined nearly 4%.<\/p>\n Every time there’s a reasonably big move in the dollar, you can bet that extreme opinions are going to start trending.<\/p>\n There are usually one of two hot takes…<\/p>\n On the one hand, it’s the death of the dollar. On the other hand, we’re entering a new period of complete dollar dominance.<\/p>\n The truth is usually a lot more boring.<\/p>\n The dollar will frequently lead major currency trends around the world. This results in an echo effect that takes time before the currency market stabilizes.<\/p>\n It’s all because of the dollar’s status as the reserve currency of the world.<\/p>\n Practically everyone around the world must have at least a few dollars on hand. There’s actually more dollar-denominated debt outside America than within it. That’s because the dollar’s used so often in international trade. <\/p>\n So whenever the Fed marks a shift in monetary policy, many other countries must follow suit. If they don’t, then the dollar-denominated debt they hold will be increasingly more expensive to pay back.<\/p>\n Monetary policy takes quite some time to filter through the system. That’s why it took several months, and numerous interest rate hikes, before inflation started to meaningfully decline.<\/p>\n Once the Fed started raising rates in early 2022, central banks around the world soon followed.<\/p>\n Generally speaking, higher interest rates will see a currency go up in value against its peers. Falling rates will see it weaken.<\/p>\n That’s why when the Fed started its rate hiking cycle, the dollar soared. And as the Fed got closer to a pause in rate hikes, the dollar began to fall.<\/p>\n When the Fed started hiking, other central banks were behind the curve. And right now, while the Fed is contemplating a pause in rate hikes, other central banks might not be finished with their own hiking cycles.<\/p>\n Once the Fed and its international peers are back in sync, the currency markets should stabilize.<\/p>\n <\/p>\n Free Trading Resources<\/strong><\/p>\n Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/p><\/div>\n<\/div>\n <\/p>\n But we’re still far from that event taking place. That means currency trading opportunities are still there for the taking.<\/p>\n And now that we’ve seen a pretty big move in DXY, the currency markets are primed for additional volatility.<\/p>\n Next week we’re going to walk through an updated chart of DXY to see where the next big trades are likely to be.<\/p>\n Until then, happy trading,<\/p>\n Imre Gams<\/p>\n <\/p>\n