The current historical story of the market for generations is the political battle of Western governments to continue capitalism or move to an authoritarian system. The US is leading the way with Democrats, Black Rock, Vanguard and State Street and controlling $20 trillion against Republicans and Trump to revert the system back to its capitalist roots. The Democrats are currently the winners, especially since they have won the support of big business.
Democrats seek support, direction and control of every dollar while Trump and Republicans pursue capitalism to distribute wealth.
Central banks are ready to fight high inflation and raise interest rates, but without causing economic calamity or getting involved or taking sides in political hostility. A mistake by Powell then the Fed and the independence of central banks will be lost to the control of the political system. And never come back.
The Fed’s interest rate hike policy has forced the 50-year averages of DXY and non-USD pairs to lows not seen in decades.
The next battle, if there was one, is control of export markets as it once existed in the 1930s with floating currencies. Conditioned on the scenario of high inflation, low GDP and the lowest exchange rates in decades, national economies are the first to recoup lost revenue due to high inflation and low GDP . We now have a real economic conflict between nations, regardless of capitalism against authoritarian victors.
DXY hit highs of 110.70 and 85 pips from 111.55. Count the EUR/USD minus 85 pips and the all-time low stands at 0.9811.
GBP/JPY at 165.00 nears highs of 168.00 since the break of the 5-year average at 146. Since February, GBP/JPY has traded at 146.00 at the average over 5 years to highs of 168.00.
EUR/AUD is watching 1.4740. GBP/AUD is the best long trade. The USD/JPY and JPY cross pairs are trading in the stratosphere. Add 85 pips to today’s USD/JPY, then the highs will be at 144.82.
EUR/NZD is trading lower at 1.6332 while GBP/NZD is trading higher at 1.9163. A large divergence exists between GBP/NZD and EUR/NZD.
The best trades to end the week and head into the next are the long EUR/USD and EUR crosses and the short USD/JPY and JPY crosses.