From RGE Monitor
U.S. Dollar Dump a Danger
Some members of the DPJ have vowed to shun U.S. debt, which suggests public pension funds and other quasi-government funds (such as the newly privatized Japan Post Holdings, whose shares are still held by the government) could move to higher-yielding assets if DPJ becomes the ruling party. Diversification of FX reserves and pension funds away from the U.S. dollar could mean sharp losses for the dollar. Japan is the second largest foreign holder of Treasuries after China. The reduction in Japan’s external surplus in 2009 may already have contributed to a reduction in Japanese reserve growth and U.S. debt holdings. Despite the decrease in the U.S. current account deficit and a higher U.S. savings rate, the U.S. would have a very difficult time meeting its financing needs if Japan stopped buying U.S. debt and sold off its dollar assets or signaled the intent to do so. Such a move could precipitate a disorderly decline in the U.S.
dollar and the loss of its supremacy as a global reserve currency, especially if other reserve holders followed Japan’s lead. A dollar crash would be undesirable for Japan, though, due to its large U.S. dollar holdings and the desire of its policymakers to aid Japanese exporters through a weak domestic currency. Japanese reserve diversification are thus likely to remain gradual, but the chance of political change come August 2009 raises uncertainty on this point.
Comments: In reviewing the recent movements of the US dollar, it is increasingly difficult to argue that the Fed is pursuing a "strong dollar" policy.
Recent Fibonacci numbers on the US Dollar Index follow:
100%........89.3
76.4%.......85.1
61.8%......82.4
50%.........80.3
38.2%......78.2
23.6%......75.5
0%...........71.3
The current 50 day EMA sits at 80.2
The 200 day EMA is 81.2
The index reading today - 78.8
Are we heading to the next support level of 75.5 before a US dollar rally kicks in?
What happens if Japan or China start to dump US debt holdings this fall?
U.S. Dollar Dump a Danger
Some members of the DPJ have vowed to shun U.S. debt, which suggests public pension funds and other quasi-government funds (such as the newly privatized Japan Post Holdings, whose shares are still held by the government) could move to higher-yielding assets if DPJ becomes the ruling party. Diversification of FX reserves and pension funds away from the U.S. dollar could mean sharp losses for the dollar. Japan is the second largest foreign holder of Treasuries after China. The reduction in Japan’s external surplus in 2009 may already have contributed to a reduction in Japanese reserve growth and U.S. debt holdings. Despite the decrease in the U.S. current account deficit and a higher U.S. savings rate, the U.S. would have a very difficult time meeting its financing needs if Japan stopped buying U.S. debt and sold off its dollar assets or signaled the intent to do so. Such a move could precipitate a disorderly decline in the U.S.
dollar and the loss of its supremacy as a global reserve currency, especially if other reserve holders followed Japan’s lead. A dollar crash would be undesirable for Japan, though, due to its large U.S. dollar holdings and the desire of its policymakers to aid Japanese exporters through a weak domestic currency. Japanese reserve diversification are thus likely to remain gradual, but the chance of political change come August 2009 raises uncertainty on this point.
Comments: In reviewing the recent movements of the US dollar, it is increasingly difficult to argue that the Fed is pursuing a "strong dollar" policy.
Recent Fibonacci numbers on the US Dollar Index follow:
100%........89.3
76.4%.......85.1
61.8%......82.4
50%.........80.3
38.2%......78.2
23.6%......75.5
0%...........71.3
The current 50 day EMA sits at 80.2
The 200 day EMA is 81.2
The index reading today - 78.8
Are we heading to the next support level of 75.5 before a US dollar rally kicks in?
What happens if Japan or China start to dump US debt holdings this fall?
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