The US Dollar Bull Market is Alive and Well
the “big” move in the USD we have witnessed over the last 6 months is only just the start of a major move and what appears overbought now will remain so for a considerable period of time
According to the Bank of International Settlements, there is $9 trillion of dollar-denominated debt outstanding in the private sector around the world. That is the short position. Whatever the reasons for the recent firming of the dollar, the true firming eventually will occur when all issuers of dollar-denominated debt see their liabilities rise. They will have to hedge their positions and buy dollars, creating demand for the dollar.
At the same time, the current account deficit of the U.S., which is the way the U.S. supplies dollars to the rest of the world, has been shrinking in recent years. Therefore, there is a diminishing supply of new dollars.
So while the US current account deficit continues to narrow there is absolutely going to be a shortage of USDs. There is $9 trillion of dollar denominated debt outstanding, well considering that it took a number of years to build up this debt, it is going to take more than just a few months to unwind, more likely a couple of years at least
we are only in the initial stages of a bull market in the USD.
“The key to everything is patience. You get the chicken by hatching the egg, not by smashing it.” – Arnold H. Glasow