US Dollar Analysis: Maintaining Dominance Amidst Challenges
Will the dollar be able to maintain its dominance in the upcoming period??
The US dollar's continued dominance in the near future raises important questions. Presently, it stands as the dominant force in the world of financial assets, and this position is supported by several key factors:?
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? First, the flexibility of the American economy, with most economic data surpassing market expectations, in contrast to the data of most developed and emerging countries' economies.?
? Secondly, the possibility of continued monetary tightening by the Federal Reserve, as indicated in the minutes of its meeting dated August 16, where it maintained high-interest rates until the end of this year. US Federal Reserve Chairman Jerome Powell also indicated at the Jackson Hole Forum on August 25 that he is ready to continue monetary tightening if necessary. Such actions would invariably bolster the US dollar while putting pressure on major and emerging currencies, as well as influencing markets such as US stock indices, the bond market, and commodities denominated in US dollars—especially gold and the crypto market, with particular attention to Bitcoin.?
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However, there are concerns lurking within the United States itself. These include the US Treasury's debt exceeding approximately $32 trillion and the debt-to-GDP ratio surpassing 110%. Additionally, credit ratings for both the United States and several smaller to medium-sized banks have faced downgrades, with the possibility of these downgrades extending to larger institutions. The cost of insuring against sovereign debt risks (CDS) is substantially higher compared to countries with similar credit ratings.?
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Considering these factors, one question looms large: will the current positive momentum for the US dollar persist, and for how long??
Taking a closer look at the technical aspects, the US Dollar Index, which measures the dollar's performance against a basket of six major currencies, appears to be on an upward trajectory, currently testing levels at 104.93 points and approaching the psychological resistance level of 105 points. Should this resistance be breached, there is potential for the index to reach 105.88 points, marking its highest level this year, recorded on March 8. A notable development on the technical side is the convergence of the 50-day moving average at 102.53 (in blue) and the 200-day moving average at 103.02 (in yellow). Should a golden crossover between these two moving averages occur, it could signify further upward momentum for the dollar index. Examining the Relative Strength Index (RSI), it currently sits at approximately 69 points, surpassing the 50-point threshold and approaching the 70-point level, often considered the overbought territory.?
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.
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