US Dollar - The World's Reserve Currency:
The US Dollar as the world's reserve currency is an issue which causes mix reactions and thoughts. When the US Dollar became the reserve currency there was no Euro or Chinese Renminbi. Since their introduction it has eaten into the US Dollar's world dominance and as a result has led to it declining from the 70%-80% range to the 60% range.
If one remembers, the UK Pound Sterling, once was the world's reserve currency but it now only accounts for around 4% at the moment. So things can change and it is not a given that the US Dollar will remain the world's reserve currency forever. It will have to earn that right which it may well do.
The US Dollar’s share of global central bank reserves hit a 5-year low, according to the International Monetary Fund.
Now is this the beginning of a significant change here? Is the US, the world superpower it once was? There is no doubt it is the mightiest country in the world at this moment in time in terms of economics but imagine if the US Dollar lost its reserve currency status. This would have a large impact on the economics within the US.
I do not envisage the US losing its status anytime soon but if things continue to get worse and other countries find ways to conduct international transactions / transfers / payments without the need to hold US Dollars, and an alternative arises then who knows.
Going back to my FTSE analysis I see things as follows:
2 scenarios present themselves, other than fresh ATHs that is: 1) the move down to the turn on Thursday was a wave 1 (blue) off a larger scale wave 2 (purple) that should retrace, maybe in a complex fashion with a lot of whip saw price action maybe not, let's see; 2) the recent rally and drop to a new low was a 1-2 (red), which indicates a much stronger leg down is immanent.
The #2 scenario would only be valid if price holds below the previous high (circa 7300). I favour the #1 scenario.
There was PMD on the 4H chart at wave 1 (blue), which suggests this is a turning point. Also the 4H chart shows a 1-5 wave down to the 1 blue, which would be motive and suggests a trend change to the bearish side.
There was strong NMD at wave 2 (Purple) which is consistent with a large scale retrace move.
Just as with the US large caps, after the stop and turn up there was a sharp retrace drop to the Fib 76/78% zone before the current rally. As the FTSE was in out of hours at the end of the week this market has not rallied as hard as the US markets. Also we may yet see fresh ATHs on US large caps while the FTSE100 only puts in a counter trend rally.
If we do see fresh ATHs on US large caps and only a retrace on FTSE and probably Dax and Nikkei as well then comparing these markets will be instructive for calling that top on US large caps. We may, alternatively, see only a retrace on US large caps too if the top of the market in already in.
Conclusion: we can anticipate a bullish period on all major indices BUT should guard against a quick reversal on FTSE 100 that would set up scenario #2. Either way this market looks to have topped out so the coming months though to the Autumn will be critical to deciding things on all indices, and likely quite a few other markets.
I am Long the FTSE 100, coincident with my Dow Longs and will swing this up for now but my bearish bias for the long term will keep we watchful for a break down of this rally and I will not be pyramiding this one, far too risky until things are resolved.
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