DXY Dollar Index Forecast
In August 1971, President Nixon’s announcement that the dollar would no longer be converted to gold with the official announcement that Bretton Woods had ceased to act, heralded the end of the US Global Plan.
The plan, which is based on marketing surplus production of the USA to the world under the name of New Order, started to lose its validity as a result of the deficit started in the 1970s.
In August 1971, first France and then Britain demanded the gold reserves held in the USA, and the US response was to give up the gold standard, while the cards were being redrawn for the world economies.
After the announcement that Bretton Woods was abandoned, the statements made by Treasury Secretary John Connally during his visit to Europe were the herald of a new era that will continue to have an effect even today.
“I am here as a representative of a country that has given our European friends our resources, supplies and other things in abundance over the years. However, this situation cannot be sustained as it causes the depletion of our reserves and resources. We helped in the past (World War II and after) when you were in trouble, now we want similar support from you” A soft-toned message…
However, the real message is still being remembered by Europeans today: “The dollar is our money but your problem”.
In short, the Dollar is the reserve currency, and the end of Bretton Woods is not a US problem.
The USA, which uses the advantage of having a reserve currency quite effectively even today, has the flexibility to move the markets according to its own wishes.
The dollar index declined from 103 to 89 in 5 years after the FED began to cut interest rates with the weakening dollar theme in the Trump period.
With the Biden government taking office, the plan to pull production to the US and the increase in corporate tax may cause the abandonment of the weak dollar policy.
Treasury Secretary Janet Yellen’s statement at the beginning of the year saying that “we consider the market’s determination of the value of the dollar is correct, and the US will not intervene” was revealing the intention of new policies.
The fact that the USA is far ahead of Europe in vaccination, support packages that will increase economic growth and infrastructure expenditures will continue to support the dollar on a global scale.
I predict that the DXY will continue its uptrend as long as it closes above 91.70.
While the FED is not disturbed by the increasing bond yields yet, it prevents the yield curve control, while the ECB has implemented a completely opposite policy, increasing the rate of bond purchases starting this month. More major recovery problems will arise in Spain, Italy and Greece if the Southern Region of Europe, whose economies are based on tourism, will lose tourism revenues for another season. For this reason, the ECB will not want to enter the summer months with the strong Euro.
1.18800 -1.19500 interval can be used as a reselling opportunity targeting 1.16800, 1.15100, and 1.12500.
Until the end of Q3 2021, a stronger USD is likely.
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