What to Expect from the US Dollar in 2020 and Beyond

Simple Chart Masks Its Complex Nature

One subject attracts more opinions than any other: what to expect from the US Dollar ($USD) in 2020 and beyond.

There is an overriding theme amongst most “dollar watchers” that is related to the indisputable fact that it has retained its status as the reserve currency for the world. The $USD is recognized as a “go-to” currency during turbulent financial times. I witnessed the power of the $USD during the mid-1990s in Russia. (My wife and I spent three weeks there adopting a baby boy.)

Everyone we came in contact with asked for “dollars.” Russian rubles, the official currency, was not discussed in any small transactions we undertook.

So what about today?

Well, one look at the weekly chart for the $USD is all it takes to see that there has been strong chart action since mid-2011. The $USD weekly chart has developed an easy to follow trend line that has three defined areas of support. 

$USD Weekly Chart – Strong and Steady…..So Far

It is hard to make any bearish case for the $USD so long as this trend remains in place. As of today, trend momentum is positive, and the price chart is above the Ichimoku Cloud – both of these chart indicators are positive.

MACD, on long term trend settings, is not shown on this chart. However, the signal line is below the trigger line which is negative, but both lines are above the zero line, which is positive. MACD is at least flattening, or one might make that case that it may be establishing a “rounded top,” but it is too early to suggest that is what is happening.

It is interesting to note that gold, having broken through the 6-year resistance level, nominally at $1350/$1375, has risen in a moderately strong $USD environment. 

Counterpoint: A Thoughtful Case for a Lower $USD

“Canada’s most famous economist,” David Rosenberg, has recently left his longtime position of Chief Economist and Strategist at Gluskin Sheff and Associates (2009 – 2019) to start his own firm: Rosenberg Research and Associates. Before leaving Gluskin Sheff, Mr. Rosenberg was the Chief North American Economist at Merrill Lynch in New York. He lays out an economic argument that outlines how the surging stock market is a “bull market in financial engineering.”

In a recent interview with Jay Taylor, he goes on to discuss how he differentiates this bull market from the ones in the 1980s and 1990s, which were predicated on productivity. This bull market is driven by “artificial liquidity” provided by the FED. He goes on to comment that a financial advisor to Nixon in the 1970’s made that point that “anything that can’t last forever, by definition, won’t.” 

In summary, the real question that finds its way back to how the $USD will perform in the future is tied to consumer sentiment in the USA. Over 2/3 of GDP growth in the US is consumer-driven. When this portion of GDP growth starts to slow, and unemployment starts to rise, the FED will act by reducing rates. As we all know, further rate reductions are taking place from historically low levels. The impact of additional tiny quarter-point rate reductions is already being questioned as to their efficacy.

The timing for a GDP decline may be in the second half of 2020. This fits well with the $USD chart, which is still well above its trend line.

And finally, since there never are any “easy answers” to “hard questions,” there are a few important factors we have not considered that can be expected to impact the $USD.

The US Federal election, global trade, and growing geopolitical uncertainty are just some of the unknowns that will surely make their presence felt in 2020.

-John Top