Trump Wants A Weaker Dollar, And Will Likely Get It

April 9, 5:00 pm EST

A key piece in the continuation of the global economic recovery will be a weaker dollar.  It will drive a more balanced U.S. and global economy, and it will reflect strength in emerging markets (i.e. capital flows to emerging markets).

To this point, as we’ve discussed, higher U.S. rates have meant a stronger dollar.  With global central banks moving in opposite directions in recent years, capital has flowed to the United States.  But the emerging markets have suffered under this dynamic.  As money has moved OUT of emerging market economies, their economies have weakened, their currencies have weakened, and their foreign currency denominated debt has increased.

But now we have a retrenchment from the Fed.  And we have coordinated global monetary policy (facing in the same direction).

This sets up to solidify a long-term bear market for the dollar.

Let’s take a look at a couple of charts that argue the long-term trend is already lower, and the next leg will be much lower.

First, here’s a revisit of the long-term dollar cycles, which we’ve looked at quite a bit in this daily note.

Since the failure of the Bretton-Woods system, the dollar has traded in six distinct cycles – spanning 7.6 years on average.  Based on the performance and duration of past cycles, the bull cycle is over, and the bear cycle is more than two years in.

With this in mind, if we look within this current bear cycle, technically the dollar is trading into a major resistance area – a 61.8% retracement.  The next leg should be lower, and for a long period of time. 

Trump wants a weaker dollar, and I suspect he’s going to get it.

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