2022-04-14 • Updated
The credibility of the US dollar and its banking system depends on the fact that it's considered safe and low-risk. That's why many countries around the world keep their reserves in US banks and hold US bonds in large quantities. However, if the dollar's credibility erodes because of politics, this international monetary and financial system can start collapsing.
The move of the US and its Western allies to freeze most of Russia's foreign exchange reserves has raised fears that the dollar's hegemony is being used as a weapon.
But, why won't the dollar lose its dominance so soon?
There's no real alternative or competitor. The US dollar is the strongest reserve currency in the world. We can argue that the dollar depreciated after the crazy printing of money over the past three years and hot inflation. We can say that the world's confidence in the US as a strong partner is declining increasingly. However, you must have an alternative to exchange dollars. According to history, reserve currencies give way to each other when a more attractive currency comes along. China - today's rising power - has so far shown no reason for the global economy to trust it.
The euro is the main alternative to the dollar, representing 20% of central banks' reserves. Still, we should be aware of the shift towards smaller currencies such as the Australian dollar, the Korean won, and, above all, the Chinese renminbi.
At the moment, the dollar index is still poised to rise after testing levels above 100. On the upside, the next big target is 103.00. The aggressive tightening cycle of the Fed is also expected to support the dollar in the medium to long term.
Chart 1: The Dollar index is on the rise since the beginning of the Russia - Ukraine war on 24/02/2022, reaching levels above 99.80.
Chart 2: The dollar's index next target is 103, last seen in 2020.
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Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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Don’t waste your time – keep track of how NFP affects the US dollar and profit!
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