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Currency

A Precise Target for Dollar's Plunge

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Posted by Rick Ackerman

on Tuesday, 16 January 2018 06:39

Dollar-Index-looks-bound

The 91.57 downside target we were using for the dollar looked promising as a place for a powerful bounce to occur. Instead, sellers crushed it on Friday, putting in play a significantly lower target at 88.29 that I would rate as almost certain to be reached.

If so, it would add 2.9% to the Dollar Index’s so far 12.4% decline from the 103.82 high recorded a year ago. It would also undoubtedly quicken the inflation drumbeat we’ve been hearing recently from the usual, benighted  sources — i.e., the news media, professional economists and talking heads. I expect my new target, a clear and compelling Hidden Pivot support, to resist sellers for a while, at least. But if it gives way relatively quickly — and by that I mean within a day or two of first being touched — I would infer that the U.S. dollar is headed significantly lower. At the same time, we could expect to see the continuation of some big trends, including lower prices for Treasury bond and notes, and higher prices for stocks, crude oil, precious metals and of course bitcoin. 

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Currency

Dollar Tumbles As Euro Soars To 3-Year High; US Markets Closed

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Posted by ZeroHedge

on Monday, 15 January 2018 06:53

With US markets closed for holiday, it has been a quiet, low-liquidity European session, with Asia similarly subdued, while continued USD weakness, now in its 4th consecutive day, has been the main focus as Bloomberg’s dollar index approached its lowest level in three years, helping push the euro up to its strongest since 2014.

Indeed, in lieu of active equity markets, it's been all about FX and the tumbling dollar and overnight the EURUSD rose to a new three year high just shy of 1.23 before easing off, while cable briefly rose above 1.38 - its highest level since Brexit - and the Mexican Peso was well supported by an unconfirmed Axios reports that was Trump softening his stance on Nafta, at least until Reuters denies it.

EURUSD 1.23 0

The Euro was boosted by growing expectations of tighter monetary policy from ECB, while the chance of a pro-European Union coalition in Germany also boosted confidence in the continent.

“The latest leg up in the euro has clearly come from optimism that the German government is moving towards an agreement for a coalition government,” said Investec economist Victoria Clarke.

....much more HERE



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Currency

Governments Crack Down on Cryptocurrencies

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Posted by Banyan Hill Investments

on Friday, 12 January 2018 07:00

bitcoin-investmentsAfter hitting $20,000 in mid-December, bitcoin prices keep drifting lower.

Looking at the news, it’s clear to me why this is happening.

On Monday, the Financial Industry Regulatory Authority (FINRA), the organization that regulates brokers, advisers and financial institutions in the United States, announced that it was going to focus on cryptocurrencies.

FINRA is a big deal if you manage money or if you are a financial adviser … you have to follow its rules and subject yourself to its examinations.

Merrill Lynch, one of the biggest financial broker and advisory companies in the U.S., banned any cryptocurrency investments in its accounts.

The Chinese government this week announced a plan for an orderly end to bitcoin mining.

That’s right after Visa Europe canceled cards that allowed users to access bitcoin.

This comes right after the South Korean government started requiring real names for all cryptocurrency transactions. The government also banned banks from opening accounts for virtual currencies.

The Indian government is waging war on bitcoin and cryptocurrencies by choking the flow of cash to anyone who’s trading these assets.

If you’ve been in markets long enough, you can see a familiar pattern here…

Putting the Squeeze on Cryptocurrency Investments



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Currency

Dollar bears multiplying; be careful!

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Posted by Jack Crooks - Currency Currents

on Thursday, 11 January 2018 06:38

Screen Shot 2018-01-11 at 6.40.42 AM

Screen Shot 2018-01-11 at 6.40.57 AM

As I scan the papers, and the web, I have noticed bank analysts and newsletter writers are becoming increasingly bearish on the US dollar. Effectively, the dollar downtrend will continue in 2018 is the view. This seems the consensus thinking to justify a dollar bearish view:

• All good news is already priced in the US dollar, for instance:

  1. Three rate hikes by the Fed in 2018

  2. Tax cut legislation will have only a minimal flow-through beneficial on the US economy in

    2018. 

• Given the synchronized global recovery, other central banks will start to play catch-up on interest rates and that will be bad for the dollar.

It makes sense. But lots of things make sense in the investing world until Mr. Market decides to prove rationales flawed.

If we use net bullish positioning in the Euro-USD CME futures contracts as a proxy for dollar bearishness, you can see we may be near some type of extreme: 

Screen Shot 2018-01-11 at 6.43.26 AM

At +113.9k net bullish Euro-USD positioning, it represents the highest on record going back to the beginning of 2009. Hmmm...this represents lots of potential selling pressure should dollar bearish rationales prove wrong; let’s take a look at what might do just that.

As it relates to the tax cut; the more one looks at that animal the better it appears. But the mainstream media would never give Trump credit for anything good. So, for the most part, the public is exposed to sniping and cherry-picking on the tax cut from the mainstream media. But there is lots of good in there, granted it’s not perfect. It is always odd to me when others complain about keeping more of their own money. 

"I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible.

The reason I am is because I believe the big problem is not taxes, the big problem is spending.

The question is, ‘How do you hold down government spending?’ Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like.

If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up.
The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes."

--Milton Friedman

From The Wall Street Journal today:

Besides tax reform, one of President Donald Trump’s most cherished goals is reducing the gaping U.S. trade deficit.

In a little-appreciated way, the tax bill expected to pass Congress this week may do just that. This wouldn’t come by making businesses and workers more productive or changing other countries’ trade practices, but by curbing the incentive for multinational companies to artificially shift profits abroad.

Independent research suggests this could reduce the trade deficit by half, or roughly $250 billion a year, and deliver a one-shot 1% or greater boost to annual gross domestic product. This would be an accounting effect rather than a change in actual business or worker income. (It would also be independent of any increased work or investment from lower tax rates.) Nonetheless, some analysts think the positive optics might curb some of Mr. Trump’s protectionist instincts, which are heavily driven by the trade deficit.

Analysts at Deutsche Bank are even more optimistic. They estimate the deficit could be reduced by $150 billion to $270 billion a year, with a corresponding one-off boost to GDP of as much as 1.4%. They think this effect could materialize in as little as year, judging by a similar tax change in Britain in 2009.

Hmm...a one-off potential jump in GDP of 1.4% and shrinking trade deficit. Sounds good, and may mean those expecting only three hikes and moderate-benefit from tax reform may want to get their forecast erasers ready. 

The chart below shows the US Current Account (current in deficit of -112.82 billion) versus the US Dollar Index since 2000. The current account deficit started improving in mid-2006 (just before the credit crunch and likely a contributing factor—see Triffin dilemma) and the US dollar has followed. So, if the current account improves further as the WSJ and others suggest, does it make sense to be dollar bearish, at least longer term? 

Screen Shot 2018-01-11 at 6.46.36 AM

And of course, there is more in the President’s bag of tricks. This excellent summary, “Trump offers a daring program to restore US dominance,” from David P. Godman, writing in the Asia Times, of the latest US national security report in which President Trump spoke briefly about yesterday. Some excerpts [my emphasis]:

• According to a preliminary copy of the president’s 2017 National Security Strategy obtained by the Asia Times, Trump envisions a radical upgrade in the US industrial base, large- scale support for scientific and technical education, and rebuilding of infrastructure, in response to China’s economic and strategic challenge. [Thinking that might be growth positive.]

  • The contrast with the two previous administrations is stark. The Trump report praises American values and institutions but betrays no ambition to remake the world in America’s image after the fashion of George W. Bush. Nor does it accept the slow decline of American influence into a geopolitical mush of multilateralism per the “soft power” conceit of the Obama Administration. It is centered on the American economy, the American homeland, and American interests, but it proposes a rough-edged activism where American interests are threatened that will make the world a less predictable place during the next several years. [Hoping this isn’t a green-light for neo-cons of course.]

  • The report embraces the term “America First,” by which Trump means that national security depends first of all on fixing what is wrong in America: a shrinking industrial base, disrepair in infrastructure, sagging innovation, inadequate scientific and technical education, and an excessive federal debt burden. [Bingo! Work on the problems here first before we tell others what they should be doing. This is exactly why we “deplorables” voted for him.]

  • Early press coverage already has misrepresented the report as a trade-war screed. It is nothing of the sort: on the contrary, it repudiates the complacency of the past several administrations who presided over a gradual deterioration of America’s competitive and strategic position. [Bingo! Tilt!]

  • The Trump strategy does not blame America’s competitors for its economic problems, let alone propose a trade war. The term “tariff” does not appear at all in the draft copy reviewed by this publication; ostensible currency manipulation is nowhere mentioned; and the term “dumping” appears only once. Instead, the report takes aim at the industrial policy of Asian nations who “subsidized their industries, forced technology transfers, and distorted markets. These and other actions challenged America’s economic security.” But the next sentence makes clear that America’s injuries for the most part were self-inflicted: “At home, excessive regulations and high taxes stifled growth and weakened free enterprise – history’s greatest antidote to poverty. Each time government encroached on the productive activities of private commerce, it threatened not only our prosperity but also the spirit of creation and innovation that has been key to our national greatness.” [Mana from heaven.]

I have linked the full article above. Lots of interesting stuff in there and well worth the read.

The point in sharing this is to suggest just maybe the US will grow a lot faster than expected in 2018. The framework is there for a self-feeding virtuous flow of money into America.

Granted, words on a paper and implementation are two different things; especially in a world where US politicians have so many conflicting interests they put ahead of the general welfare of the country. But, stranger things have happened.

So, if you are a long-term US dollar bear, you may want to be a cautious one.

Jack Crooks, President,
Black Swan Capital

jcrooks@blackswantrading.com

www.blackswantrading.com

772-349-6883/ Twitter: bswancap 



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Currency

How Quickly Will the Dollar Collapse?

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Posted by Alasdair Macleod

on Friday, 05 January 2018 07:01

The-Dollars-Days-are-Numbered-622x415This might seem a frivolous question, while the dollar still retains its might, and is universally accepted in preference to other, less stable fiat currencies. However, it is becoming clear, at least to independent monetary observers, that in 2018 the dollar’s primacy will be challenged by the yuan as the pricing medium for energy and other key industrial commodities. After all, the dollar’s role as the legacy trade medium is no longer appropriate, given that China’s trade is now driving the global economy, not America’s.

At the very least, if the dollar’s future role diminishes, then there will be surplus dollars, which unless they are withdrawn from circulation entirely, will result in a lower dollar on the foreign exchanges. While it is possible for the Fed to contract the quantity of base money (indeed this is the implication of its desire to reduce its balance sheet anyway), it would also have to discourage and even reverse the expansion of bank credit, which would be judged by central bankers to be economic suicide. For that to occur, the US Government itself would also have to move firmly and rapidly towards eliminating its budget deficit. But that is being deliberately increased by the Trump administration instead.

Explaining the consequences of these monetary dynamics was the purpose of an essay written by Ludwig von Mises almost a century ago.[i] At that time, the German hyperinflation was entering its final phase ahead of the mark’s eventual collapse in November 1923. Von Mises had already helped to stabilise the Austrian crown, whose own collapse was stabilised at about the time he wrote his essay, so he wrote with both practical knowledge and authority.

The dollar, of course, is nowhere near the circumstances faced by the German mark at that time. However, the conditions that led to the mark’s collapse are beginning to resonate with a familiarity that should serve as an early warning. The situation, was of course, different. Germany had lost the First World War and financed herself by printing money. In fact, she started down that route before the war, seizing upon the new Chartalist doctrine that money should rightfully be issued by the state, in preference to the established knowledge that money’s validity was determined by markets. Without abandoning gold for her own state-issued currency, Germany would never have managed to build and finance her war machine, which she did by printing currency. The ultimate collapse of the mark was not mainly due to the Allies’ reparations set at the treaty of Versailles, as commonly thought today, because the inflation had started long before.

The dollar has enjoyed a considerably longer life as an unbacked state-issued currency than the mark did, but do not think the monetary factors have been much different. The Bretton Woods agreement, designed to make the dollar appear “as good as gold”, was cover for the US Government to fund Korea, Vietnam and other foreign ventures by monetary inflation, which it did without restraint. That deceit ended in 1971, and today the ratio of an ounce of gold to the dollar has moved to about 1:1310 from the post-war rate of 1:35, giving a loss of the dollar’s purchasing power, measured in the money of the market, of 97.3%.



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