Strong USD: Sluggish Aftermarket of These Currencies

The main reason for the situation where DXY has seen a steep slump after its rapid growth is the dovish message unexpectedly sent by Powell, the chair of the Federal Reserve (Fed), last week. According to him, the interest-rate hikes will not be ahead of schedule, which makes the financial market worry again about the possible slowdown in the delisting of the Fed. From my personal view, although the aftermarket of DXY is reliant on the monetary policies stipulated by the Fed to a large extent, the Fed will inevitably face the pressure of delisting, conducive to another uptrend embraced by DXY.

As for this pressure, it is influenced by the American inflation and economic performance on one hand and affected by Yellen, the U.S. Secretary of Treasury on the other hand. The worsening inflation is highly possible to exacerbate in the future because of the continuous increase in crude oil prices, the dominating reason for inflation, and the rise in salaries, regardless of the fall in prices of some fundamental metals. Therefore, it is believed that inflation in the U.S. will escalate continuously.

Delisting conducted in the short run is still possible despite the impossibility of increasing interest rates within the short term indicated by the Fed. From Yellens perspective, tightening monetary policies is more urgent than ever in a bid to combat inflation and prevent the USD from depreciating further. Consequently, I expect that the Fed may announce delisting on July 28th or on September 22nd if delayed.

Fluctuating in the range from 92.405 to 91.513 last week, the figure for DXY is most likely to peak at 93.437, the highest in the year, and challenge 94.742 as expected. The stronger the DXY is, the weaker the JPY will be. As the U.S. 10-year bond interests return to 1.5% even reach 1.5326%, JPY has suffered significant pressure. According to the latest news, the variant was detected in foreign athletes entering Japan, arousing concern over the potential onslaught of COVID-19. People are worried that it may rage in Japan as it did in India because of the Tokyo Olympics, which has also shown in the latest speech addressed by the Emperor of Japan.

In addition, the Liberal Democratic Party of Japan (LDP), the ruling party at present, bears witness to the possibility of a rout in the 2021 Japanese general election in October because Yoshihide Suga, the Prime Minister of Japan, has experienced a drop in approval for his cabinet. Owing to these uncertain political situations, the market of JPY is extremely uncompetitive, which has also been impacted by the unforeseeable delisting of the Bank of Japan (BOJ). The downtrend of JPY is a foregone conclusion regardless of the increase or the decrease in the DXY this year, thus making the weak JPY clear-cut in the forex market. Based on this trend, it is conservatively expected that JPY has a chance to reach 115.00 in the next half year.

If the USD becomes strong again, the financial market is most afraid of the capital outflow occurring in emerging economies. Speaking of their currencies, TRY has performed the worst, featuring the drop in TRY/USD exchange rate by 15.2% this year, thereby seeing a weak aftermarket and a hazardous trend. If the monetary crisis sweeps through Turkey, the performance of EUR is predicted to be adversely impacted as the country is located in Europe. Besides, the European Central Bank (ECB) faces the same issue as BOJ does, i.e., the unforeseeable delisting, the hope of which is slimmer as the statistics on inflation in European countries and Japan are not as severe as those in the U.S. In my opinion, it is conservatively predicted that EUR/USD may reach a critical level at 1.1600 in the short run, and the overall uptrend of EUR will be interrupted in trading charts if the figure hits lower.