Watch Dollar For Signals On A Plaza Accord 2.0

By Bryan Rich

May 24, 5:00 pm EST

We’ve talked this week about the potential for a Plaza Accord 2.0.

As we discussed, the trade war has been manufactured by more than three-decades of China’s currency war.  It only makes sense that it can only be resolved with a primary focus on the currency.  We may find that if/when the U.S./China stalemate ends, it will be with a grand and coordinated currency agreement.
Back in 1985, the U.S. was in a fight with Japan over the imbalance in trade.  The Reagan administration ultimately brokered an agreement (the Plaza Accord) between the U.S., Japan, Germany, England and France.  That resulted in a 50% devaluation of the dollar.
The China fight looks very similar.
With that in mind, we should keep a close eye on how currencies are trading.  And today, things were moving.
Global rates were very heavy today.  Stocks were heavy all day.
Generally, in the post-financial crisis world, that would mean a strongerdollar (i.e. a higher risk environment has tended to result in global money moving into the relative safety of dollars).  That was the case as through Asia and Europe today with the dollar hitting the highs of the past twelve months.  But when U.S. stocks opened, the dollar had a big reversal.

 

You can see in the chart above, the dollar index put in a bearish outside day (a key reversal signal) — something to keep an eye on for clues. 

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