Forex Analysis Report 8-18-20...Dollar Mike Shake Theory Favoring EURO/USD
Brent Johnson is CEO and Portfolio Manager at Santiago Capital. His Dollar Milkshake theory is a theory in which the dollar is going to get a lot stronger, interest rates are going much higher, bonds will suffer, and stocks and gold are going to both perform well.
In this theory, the milkshake is central bank liquidity, but when central banks, in particular the US Feds start tightening, it will be like a big straw sucking liquidity from global markets because global loans made in US dollars will need to be paid back with interest in US dollars.
Goldman Sachs economists predicted in an August report that the Feds will pump $800 billion more into financial markets by the end of 2020, with another $1.3 trillion in 2021. Bank of America is saying investors might shift out of their U.S. dollar assets as of result of the US dollar going lower.
And with the US dollar breaching the double bottom on the daily chart, the chart suggests prices are headed lower.
The U.S. dollar fell against a basket of major currencies for a fifth consecutive trading day on Tuesday, reaching its lowest level in over two years, under pressure from low yields and bleak economic data in the United States.
Even though it has fallen in the past weeks, the dollar remains 27% above its 2011 levels, suggesting more declines could be in store for the U.S. currency, especially on a trade-weighted basis, analysts said.
“There’s lots of room, on that basis, for the dollar to fall, and most of the reason for the euro’s recovery, for example, is simply that the dollar is weaker because of the Fed’s policy shift,” said Kit Juckes, macro strategist at Societe Generale, referring to the Federal Reserve loosening the interpretation of its inflation mandate.
Christine Madeleine Odette Lagarde, the first woman to head the ECB said that Europe's top monetary authority was ready to take “appropriate and targeted measures” if necessary to support the economy against the headwinds from the new coronavirus. Last month, European Union leaders reached a deal on a 1.8 trillion-euro ($2.1 trillion) budget and coronavirus recovery fund. And the higher the Euro goes, the more the European Union leaders can justify more monetary stimulus to finance their deficits on financial markets.
So how high is the EURO/USD going, lets go to the charts?
Monthly Chart (Curve Time Frame) - monthly supply is at 1.27000 and monthly demand is at 1.04500.
Weekly Chart (Trend Time Frame) – the trend is sideways with upside momentum.
Daily Chart (Entry Time Frame) – the chart suggests if price can close above pivot highs, to go long on a pull back to the daily demand at 1.18000.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advice. Do your own research before making investment decisions.
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