USDCNY Chinese Yuan will strengthen
One significant challenge to the US dollar's dominance in the global economy is the growing trend of de-dollarization. Many countries are seeking to reduce their dependence on the US dollar for international trade, investment, and other financial transactions.
One reason for this trend is the use of economic sanctions by the US government to contain geopolitical threats. The US government has used economic sanctions as a tool of foreign policy, often targeting countries that pose a perceived threat to US national security interests. These sanctions can prevent countries from trading with sanctioned nations or accessing the US financial system, which can have a significant impact on their economies.
As a result, many countries are seeking to de-dollarize to avoid the systemic risk of being sanctioned or losing access to the US financial system. For example, nations like Saudi Arabia, Russia, India, and Iran have agreed to trade using the Chinese Yuan, especially in trading oil and gas. This move to alternative currencies like the Chinese Yuan could reduce the demand for the US dollar and weaken its value in the global economy.
Furthermore, the Chinese government has taken significant steps to strengthen the international role of the Chinese Yuan. For example, they have established currency swap agreements with over 30 countries, allowing for the direct exchange of currencies without the need for the US dollar as an intermediary. Additionally, China has established the Belt and Road Initiative, a massive infrastructure development project in Asia, Europe, and Africa. This initiative is expected to significantly increase the use of the Chinese Yuan in international trade and investment, further weakening the dominance of the US dollar.
Another significant factor weakening the US dollar is QE infinity, which has resulted in the inflation of the dollar and the destabilization of the US economy, apparent in the series of bank failures. The US Federal Reserve's ability to print dollars ad infinitum, without causing significant inflation, has been supported by the Petro-dollar system. This system required nations wishing to buy oil or gas to purchase dollars in the past, which strengthened the dollar. However, as more countries de-dollarize, the demand for the US dollar in oil and gas transactions could decline, which could weaken the US dollar's value.
Moreover, the US dollar's value has also been supported by the notion that the US has a deep taxpayer base and the strongest military. Nations leaving the dollar could put pressure on the US to increase taxation to compensate for the loss of revenue from the Petro-dollar system. Additionally, any significant losses in US military conflicts could have a disastrous impact on the US dollar's value, as the US military is seen as a symbol of US strength and security.
In conclusion, de-dollarization is a growing trend in the global economy that poses a significant challenge to the dominance of the US dollar. Countries are seeking to reduce their dependence on the US dollar to avoid being sanctioned and to reduce their exposure to the risks of the US financial system. The trend towards de-dollarization is likely to continue, which could weaken the value of the US dollar in the global economy. The US dollar's value is also being challenged by factors such as QE infinity, the potential decline of the Petro-dollar system, and the risks to US military strength and taxation revenue. Meanwhile, the Chinese Yuan is expected to strengthen as China takes steps to increase its international role and influence, potentially weakening the dominance of the US dollar in the global economy even further.
In terms of technical analysis of USDCNY, it appears that the Yuan will strengthen, indicating that US efforts to support the dollar will fail. USDCNY has dropped below its range resistance and retested it, a pattern known as a "fakeout" above a key level. This pattern has previously resulted in USDCNY reaching a bottom of the range at 6.3. The clear pattern of a "fakeout" above a key level in USDCNY suggests that the dollar will fail to hold its range support, as previously predicted in the idea of the DXY dollar index.
The possibility of DXY bouncing off its support is less likely than breaking below its support, as DXY is in a descending channel. If DXY were to rise, so would USDCNY, but the range support for USDCNY has now turned into resistance, from which it has already been rejected. Furthermore, the descending channel of USDCNY provides additional resistance to an upward move.
If this analysis proves to be accurate, it would once again confirm the maxim that "all news is in the chart."
One reason for this trend is the use of economic sanctions by the US government to contain geopolitical threats. The US government has used economic sanctions as a tool of foreign policy, often targeting countries that pose a perceived threat to US national security interests. These sanctions can prevent countries from trading with sanctioned nations or accessing the US financial system, which can have a significant impact on their economies.
As a result, many countries are seeking to de-dollarize to avoid the systemic risk of being sanctioned or losing access to the US financial system. For example, nations like Saudi Arabia, Russia, India, and Iran have agreed to trade using the Chinese Yuan, especially in trading oil and gas. This move to alternative currencies like the Chinese Yuan could reduce the demand for the US dollar and weaken its value in the global economy.
Furthermore, the Chinese government has taken significant steps to strengthen the international role of the Chinese Yuan. For example, they have established currency swap agreements with over 30 countries, allowing for the direct exchange of currencies without the need for the US dollar as an intermediary. Additionally, China has established the Belt and Road Initiative, a massive infrastructure development project in Asia, Europe, and Africa. This initiative is expected to significantly increase the use of the Chinese Yuan in international trade and investment, further weakening the dominance of the US dollar.
Another significant factor weakening the US dollar is QE infinity, which has resulted in the inflation of the dollar and the destabilization of the US economy, apparent in the series of bank failures. The US Federal Reserve's ability to print dollars ad infinitum, without causing significant inflation, has been supported by the Petro-dollar system. This system required nations wishing to buy oil or gas to purchase dollars in the past, which strengthened the dollar. However, as more countries de-dollarize, the demand for the US dollar in oil and gas transactions could decline, which could weaken the US dollar's value.
Moreover, the US dollar's value has also been supported by the notion that the US has a deep taxpayer base and the strongest military. Nations leaving the dollar could put pressure on the US to increase taxation to compensate for the loss of revenue from the Petro-dollar system. Additionally, any significant losses in US military conflicts could have a disastrous impact on the US dollar's value, as the US military is seen as a symbol of US strength and security.
In conclusion, de-dollarization is a growing trend in the global economy that poses a significant challenge to the dominance of the US dollar. Countries are seeking to reduce their dependence on the US dollar to avoid being sanctioned and to reduce their exposure to the risks of the US financial system. The trend towards de-dollarization is likely to continue, which could weaken the value of the US dollar in the global economy. The US dollar's value is also being challenged by factors such as QE infinity, the potential decline of the Petro-dollar system, and the risks to US military strength and taxation revenue. Meanwhile, the Chinese Yuan is expected to strengthen as China takes steps to increase its international role and influence, potentially weakening the dominance of the US dollar in the global economy even further.
In terms of technical analysis of USDCNY, it appears that the Yuan will strengthen, indicating that US efforts to support the dollar will fail. USDCNY has dropped below its range resistance and retested it, a pattern known as a "fakeout" above a key level. This pattern has previously resulted in USDCNY reaching a bottom of the range at 6.3. The clear pattern of a "fakeout" above a key level in USDCNY suggests that the dollar will fail to hold its range support, as previously predicted in the idea of the DXY dollar index.
The possibility of DXY bouncing off its support is less likely than breaking below its support, as DXY is in a descending channel. If DXY were to rise, so would USDCNY, but the range support for USDCNY has now turned into resistance, from which it has already been rejected. Furthermore, the descending channel of USDCNY provides additional resistance to an upward move.
If this analysis proves to be accurate, it would once again confirm the maxim that "all news is in the chart."
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.