Since Donald Trump’s election win in November – a total shock to many investors, but an outcome I forecast well in advance – the U.S. dollar has soared through the roof. In fact, it has been one of the strongest moves in decades, but the buck fell sharply to start this week.
Ironically, the catalyst for the dollar correction is … Trump himself!
In case you missed it, Trump went on record with The Wall Street Journal saying the dollar is “too strong.” He went on to say the value of the dollar is too high, in part because China manipulates the value of its currency lower, and that’s true.
But every other nation on the planet does the exact same thing; periodically talking down the value of their currencies, too, in order to secure a competitive advantage for trade.
The European Central Bank is doing everything in its power to water down the value of the euro.
The Bank of Japan has for years been manipulating the yen lower against the buck.
So it’s no surprise that Trump now takes his turn at talking down the dollar’s value as he postures for potential trade wars to come.
A big part of the reason for the pullback is simply a normal correction after such a strong upside move in the buck. No market goes up in a straight line. In fact, I have been expecting just such a breakdown in the buck’s rally, based my Artificial Intelligence (AI) cycle forecasts.
Below is a recent chart, which I sent paid-up members of my Real Wealth Report just last month, accurately calling for a top in the dollar…
Almost right on cue, the forecast cycle turn date looks like it’s in place already, at a high of 103.81 in the U.S. Dollar Index, a few weeks ahead of schedule.
After such a strong run higher from mid-2014 to the end of last year, a pullback in the buck is way overdue, and it could prove to be a sharp correction. You can see in the chart above, the correction should stretch out into late May, with the euro and yen enjoying a nice bounce against the buck over the same time frame.
But don’t make the mistake of becoming a perma-bear on the buck, because after mid-year the dollar should rise again, dramatically.
By then we’ll have plenty of details about Trump’s plan to lower corporate tax rates, which is very likely to trigger massive capital inflow into the dollar as U.S. multinational companies scramble to take advantage of lower rates to repatriate profits earned, and held, overseas.
The exact timing of the next leg higher for the dollar could be tricky however, so don’t jump the gun. There is still plenty of uncertainty about the incoming Trump administration and his policy proposals.
Plus, the prospect of trade disruptions could likewise impact the exact timing of the buck’s next bull move.
But rest assured, I’ll be updating subscribers to my Real Wealth Report about every twist and turn along the way, and giving them actionable trade recommendations to profit from the moves. Stay tuned.