To The Moon

Last week, the US dollar index briefly hit the 100 integer mark, which broke through 100 again since May 2020. For a long time, the dollar has behaved closer to commodities-showing a trend of mean reversion, fluctuating around the median,When the price is too low, it will rise, and when the price is too high, it will fall. In terms of current prices, there is still 10-20% room from the long-term median.

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Too long ago, the trend of the US dollar is linked to too many political and economic topics, and as a trader entering the market in the millennium, he can't be perfectly fastidious. However, after the financial crisis in 2007/08, there is still a very clear logic line supporting the market of the US dollar.

On the whole, the leading position of the US economy compared with other economies (for better or worse) and the market's risk appetite are the main factors affecting the fluctuation of the US dollar. Taking the subprime mortgage crisis as an example, the first round of risk aversion was followed by worries about the collapse of the US economy, which led to the V-shaped reversal of the US dollar. After the European debt crisis in 2012, the weak state of Europe and the strong state of the United States helped the US dollar regain its strength. Although there is the Federal Reserve's monetary policy interspersed among them, it is not difficult to find that raising interest rates/cutting interest rates is more of a staged impact than a trend-oriented one.

Back to the current situation, the sound of American economic strength has not stopped since last year. Although some skeptics have put forward various theories of American collapse, from the data level, compared with other major economies, the relative strength of the United States is still an unavoidable problem. This is why the Fed dared/was forced to raise interest rates.

After the crisis in Russia and Ukraine broke out at the beginning of this year, Europe naturally became the eye of the storm. As we all know, the biggest composition of the US dollar index comes from the opponent's euro. Concerns about the prospects of Europe and the euro have caused European assets to fluctuate downward. In other words, another factor supporting the dollar, hedging, also exists.

From a purely technical point of view, breaking 100 is only a psychological level position and does not have much strategic value. The real breakthrough of US dollar has been formed and determined since 97/98. The next major real concern appears in the 102/103 area, which will get rid of/out of the consolidation range since 2016 after breaking up.

Does the dollar have a chance to go higher and further? We think the probability is not small. This is not to say how strong the American economy is, it is really "set off by opponents". Under the bad environment, the US dollar is similar to gold, without many advantages, but there is no natural obvious disadvantage.

So will the trend of the US dollar herald greater market turmoil or crisis? We think we may not be able to focus on the dollar index itself intuitively. We might as well refer to the other two opponents, one is Japanese yen and the other is RMB. The yen has long been one of the safe-haven currencies, and is now close to where it was in 2007. If there is a big decline in risky assets, the yen should not continue to be under pressure. As for RMB, we have talked a lot before.So far this year, there has been no sign of direct talks between China and the United States, but the RMB has stopped appreciating. If G2 starts to work, risk-off is an inevitable result.

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