FX MACROECONOMICS 1992: Duration: 92 97 months, percentage change: -57.39%
September 1992 to October 2000: Duration:
percentage change: +77.14%
October 2000 to July 2008: Duration: 93 months, percentage change: -48.39%
July 2008 to December 2016: Duration: 101 months, percentage change: +54.28%
the question: Where could we be in the current cycle? Here are the average price swings from 1969 to 2016 along with details of each price swing:
As at the time of writing (25th April 2017) the Euro/US dollar exchange rate is trading around the 1.0900 level having found support in the 1.0300-1.0500 region following the 2014/2015 slide which completed the larger decline (U.S. dollar advance) from the 2008 peak. This begs the question: Could the last major up cycle for the U.S. dollar have run its course? A comparison with the extent and duration numbers seems to point in that direction as the last U.S. dollar uptrend had been in effect for 101 months (versus 94.83 months) at the December 2016 U.S. dollar peak while the extent number of +54.28% fell a little short of the 67.24% average price movement but was well within the historical range.
36 FX TRADER MAGAZINE July - September 2017 months,
Conclusion
While the political, economic and
cyclical drivers which
ultimately produce the large trends in asset prices can often be at odds with each other at least two of these dynamics have in my view created a ‘perfect storm’ for the U.S. dollar. Republican governments have tended to coincide - either by accident or by design - with a falling currency while the U.S. dollar has actually been rising (EUR/USD falling) for longer than its historical average term which suggests a very high risk of
While the Eurozone will undoubtedly have its own problems to contend with not least keeping the bloc together post-Brexit my guess is that whatever may be in store for the
U.S. over the Trump presidency could be (or more importantly, perceived to be) relatively worse than the issues facing Europe. For those who are in the business of forecasting currency rates
this is
the salient point as one currency is measured in terms of another as there are two sides to the equation.
seeing a much lower U.S. dollar over the next few years.
Whatever the drivers of the impending under performance of the US dollar may turn out to be the paradox is that a weaker currency will ultimately provide a boon to Trump’s “America First” agenda as the so called “currency manipulators” will finally be brought to book courtesy of yet another competitive devaluation in the almighty U.S. dollar. Watch this space…
Howard Friend C.M.T. Chief Investment Officer Easy Neu Alpha Partners SA
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