Sunday, November 20, 2016

"Clean Break: What If The Dollar Rises By Another 10%?" (DXY)

Here's the one-year performance via FinViz:

From Barron's Asia Stocks to Watch, Nov. 18:
Donald Trump‘s done it! He Makes America Great Again but at the world’s expense.
The U.S. Dollar Index has finally broken the long-time resistance level of 100 and has stayed above this level for the fourth consecutive close.

Technically, it could be considered a “clean break.” Daiwa Capital Markets’ Kevin Lai chimes in:
The momentum could be very strong going forward. This rally is taking place mainly against the EUR, JPY, SEK and CHF. They account for 79% of the DXY already. Chartwise, these currencies could have substantial downside against the USD. Fundamentally, the USD has a widening yield advantage. As such, we see plenty more upside above 100 for the DXY. In the past 35 years, there have only been 2 major breakouts: the first in 1981, when the DXY went on to rise by 60%, and the second in 2000 when it went on to gain 20%.
So it is not surprising that the People’s Bank of China has been lowering its yuan fix every day since Trump won, leading the Chinese currency to endure an 11 day losing streak. China has realized it was linked to the wrong currency and is now moving to a loose peg of a currency basket.

The dollar index has gained only 6% since its late September low, nothing compared to its historical breakouts. So what if the dollar rises by another 10%? Will Hong Kong de-peg its currency? Daiwa wrote:
If we assume the DXY rises by just 10%, the pressure on Asian currencies would still be enormous. First, we suspect the CNY would have to follow by a similar scale, bringing the USD/CNY to 7.50, which happens to be our end-2016 forecast....

Also at Asia Stocks to Watch: 
Look At How Quickly China’s Property Market Is Cooling

And an explanation
China Property Speculators Pile Into Garlic

Some of our recent posts on the dollar:

"Dollar strength exposures are not what you think" and "Inflating inflation expectations"
US Dollar Index: To Infinity and Beyond! (DXY)
Currencies: "Dollar Steps Up to Start Week"
Currencies: "Focus on Policy Mix Strengthen Dollar Bull Case"

That gets us back to last Sunday.