Currency Wars

It’s been a while since we’ve used the term “currency wars” to describe the foreign exchange market but over the past 48 hours, this issue has once again been thrust into the limelight of global politics.

For those of you who are new or have “just come for the cryptos” this is important, so let’s recap.

On and off for the past few decades, we’ve seen many different attempts from world leaders to influence the currency markets. For the most part, it’s better for a country to have a weaker currency because then more countries will be attracted to buy their products.

If a washing machine made in Japan costs ¥25,000, it will be easier for someone from Germany to buy it when the yen is cheap against the Euro.

It seems Steven Mnuchin’s comments about a weaker Dollar have sparked massive controversy. Especially since the Dollar did plunge in response. Let’s take a look at the charts and some of the responses below.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

Dollar Blowback

Japanese Washing Machines

Unconnected Crypto

Please note: All data, figures & graphs are valid as of January 26th. All trading carries risk. Only risk capital you’re prepared to lose.

Traditional Markets

The weirdest response by far was from Donald Trump who said that he read Mnuchin’s exact statement and the market had simply misinterpreted what he was trying to say.

This is a complete 180 degree turnaround from the US President and his treasury secretary. At the beginning of the year, Trump was trying to weaken the buck while Mnuchin was talking it up. Now they’ve gone and done a complete role reversal and at this point, it’s hard to tell who’s the good cop, or if there even is one.

On point, as usual, was the Governor of the European Central Bank Mario Draghi who said in much more elegant words that the United States was now involved in manipulation of their own currency. It seems the US government is taking quite a hypocritical stance. The Trump administration often labels other countries as currency manipulators.

Here we can see the US Dollar whipsawing at the time of the statements from Draghi (blue) and Trump (purple).

As the Dollar continues to weaken, we can see the commodities gaining. All commodities traded on eToro are up over the last few days on the sliding buck.

One of the most fun pairs to trade now is the USDJPY. As we mentioned a few weeks ago, the pair has been showing a rather stable trading range over the last year from about 108 to about 114.50.

The cool thing about the above chart is that the fundamentals match up nicely. Even though the Bank of Japan might be planning to ease their monetary policy, they really can’t afford for this graph to go too much lower. Because if it does, the Yen could get too strong and they’ll start to have trouble selling washing machines.

Crypto Drop

When I started writing today, the crypto market was showing a bit of a drop across all the top coins. By now it looks like the drop is getting a bit more significant…

It’s important to note that the futures contracts from the CME group will close today. The volumes that have been traded there are still rather small but there does seem to be concern among cryptotraders that Wall Street may be trying to manipulate the price.

In my opinion, it is still too early for Wall Street to try and take any such action using the Bitcoin Futures. So far they have rightfully shown extreme caution in regards to this asset as they still don’t fully understand it. That’s not to say that they won’t try to pull a fast one later on, but I think the first few settlements should go through smoothly.

At this point, cryptotraders have nothing to fear but fear itself. The currency wars happening now on the global stage shouldn’t have any effect on crypto market.

Wishing you an excellent weekend.

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The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

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