The US Dollar Index looks poised to continue its downward trajectory in 2021 and Asset Price Inflation will only continue - as long as DXY keeps dropping I will remain long equities, crypto, commodities, etc.
Technical Analysis: In March 2021 DXY retested the bottom of the rising channel it broke out of last year and rejected, reversing back down as expected. More recently DXY has broken the 2021 support line, printing a bearish engulfing candle, and at futures open looks poised to continue lower.
In my opinion we will revisit 2018 lows. Possibly even break below that level. DXY doesn't fall out of a multi-year rising channel only to print a reversal.
In recent weeks inflation worries amongst investors have hit the bond markets, with (brief) stonk sell-offs as yields spike higher. Both the Federal Reserve and Yellen (secretary of the treasury) have acknowledged rising inflation will manifest itself in the years ahead. nytimes.com/2021/05/07/opinion/federal-reserve-janet-yellen-inflation.html
Many investors & consumers fear an increase in Consumer Price Inflation (CPE) will manifest itself through higher prices of goods/services - however over the past year we have already experienced rising inflation due to the unprecedented amounts of printing not only by the US FED, but equally the ECB, BoE, etc, in the form of Asset Price Inflation (i.e. rising stock valuations, commodity prices, rising speculative investment in cryptocurrencies, etc) - investopedia.com/ask/answers/032715/what-difference-between-assetprice-inflation-and-economic-growth.asp
Continue to sell your US Dollars and buy hard assets.
The Dollar is important to watch right now. This publication has been featured in Editors' Picks. Also thank you for including the different timeframe charts (Weekly and Monthly) in the post.
Vanillasagna
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@TradingView, Thank you appreciate it! Love the TradingView community!
UnknownUnicorn15362357
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Dollar printing comments are incorrect. The Federal Reserve cannot add $ to the economy without removing an equal $ amount of another asset. The Federal Reserve in order to keep interest rates low, digitally prints money and buys assets in the open market. This puts cash in the hands of institutions to keep interest rates low. The money isn't in the real economy, it's sitting in bank reserves at the Fed.
M x V = P x Y, so if the money supply is rising, and we're not seeing over 2% inflation with the increased printing, then Velocity must be shrinking and it is. It's dropped from 10 pre-GFC to around 1 today, the money isn't entering the economy clearly by looking at velocity.
The dollar will rise once interest rate outlooks are Bullish and the Fed can't even see 2 or 3 months ahead never mind several years when their next interest rate prediction is. Look how fast they flip flopped from rising interest rates to Repo in 2019. The rising prices will trigger higher rates, and the higher rates part is what will give the dollar its value over time. DXY is around lows right now, let's see where we are in 6-12 months time
alexeck
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@The_Market_Maker_, I agree, M2 was lackluster, but the point the author here is making is asset inflation, not CPI, which is inherent in the quantity equation. One can argue that current central bank policies create asset inflation at the expense of CPI. I'm open to being educated.
randyandrajie
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@alexeck, As the super rich get more more money, and the poor have less less to spend, the economy slows down the The Velocity of money slows down. I.e. The rich are taking money out of the economy and putting it into their bank account which creates no velocity. No spending
alexeck
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@randyandrajie, No, what's actually happening is that the super rich largely gain their wealth through unrealized capital gains. Itself not contributory to M2. Jeff Bezos and Elon Musk are massively rich but it's almost all in stock. And the "poor get poorer" is meaningless, when we look at the fact that - barring COVID - median income has continued to rise steadily over the past 10 years.
aivainvesting
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@The_Market_Maker_, Inflation is not 2%. Have you been under the rock? Just look at commodities.
UnknownUnicorn15362357
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@Aivabtc, Commodities are inputs and until the cost is passed onto the consumer it's not inflation. Commodity prices are up because of the supply chain issues, not because of money printing or anything, it's a supply shock, temporary.
Vanillasagna
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@The_Market_Maker_, Thanks for the comment. I am advocating asset price inflation rather than CPI. I appreciate QE doesn't give 'new dollars' to consumers to spend on everyday goods. However I would argue injecting cash into institutions, asset purchases, corporate bond acquisitions, etc will chase prices, whether directly or indirectly. Sure today's valuations are also driven by an element of speculative investment, the economic recovery narrative, and cheap access to credit. Also I'm aware of money velocity but by no means an expert and will read into this more.
I agree with you re interest rate outlooks, rate hikes, and the Dollar strengthening as a result. However in my opinion this is a ways off. If we are to believe everything the FED says (which I don't either) we are 2-3 years away from rate hikes - I don't think it's unreasonable to assume we will continue to see a declining Dollar for another 6-12 months. Time will tell. I'm happy to be proven wrong.
UnknownUnicorn15362357
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@CryptoVendetta, I see your point and how certain markets appear inflationary rather than true to value but I don't believe that equities or similar investments can be pegged to a P/E ratio or anything like that when 50% of households have pensions that are invested in these markets and we know that incomes are rising exponentially, so investment and therefore price of these assets will rise exponentially. If you go look at a Dow chart and set the timescale between the 70s and 2007 you'll see the exact same exponential shape because incomes rose exponentially and therefore the market at that time without any federal reserve intervention directly or indirectly so that's just how I see it but there's no right or wrong way to come to a conclusion