MACROECONOMICS
FX
A good case for a bearish turn in trend?
Regardless of whether one believes that movements in the value of the U.S. dollar or the Euro for that matter are dependent on external shock events (Rumsfeld’s “unknown unknowns”) or indeed the policy decisions of those in power who are guided by their own collective political persuasions, it is worth noting that financial markets oſten appear to have a life of their own.
“Markets can remain irrational longer than you can remain solvent” J.M. Keynes
through the rear view mirror it may come as no big surprise that the dollar ended nearly 30% lower at the end of his tenure but could it have been a case of returning to type under another long period of Republican control?
The third plus move successive in the U.S.
20% unit
occurred under Mr. Obama who had to adopt many of the foreign policy stances of his predecessor whilst fighting the fires of the financial crisis. While government finances continued to deteriorate the
fact that confidence
slowly ebbed back into the financial system after the
meltdown along with a broad disengagement from far away wars combined with woes in
the Eurozone may have
helped to put a floor under the greenback.
Despite all of the major events on the world stage which have occurred since the end of the 1960s, which after the fact may have had implications for a stronger or weaker US dollar, here are the results:
REPUBLICAN presidential terms have seen an average DECLINE in the US dollar of 14.41%
DEMOCRATIC presidential terms have seen an average RISE in the US dollar of 15.07%
As with most things in life there are often long-term trends and cycles at work which have a strong pull on prices over time which can create logic defying price movements as J.M. Keynes put it, “Markets can remain irrational longer than you can remain solvent”. Of note in this case is the fact the six price swings I have highlighted have shared similar characteristics
in
terms of extent and in particular in terms of duration, which begs
Average percentage
67.24% Average duration:
(7.9 years)
August 1969 to October 1978: Duration: 110 months, percentage change: -36.08%
October 1978 to February 1985: Duration: 76 months, percentage change: +130.15%
February 1985 to September change: 94.83 months
FX TRADER MAGAZINE July - September 2017 35
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