Thread by @LynAldenContact

It is helpful to think of the #dollar direction has having three key variables at the moment.

A bit pivot occurred in September, and it is still being interpreted in various ways. A short thread.

One variable is the U.S. balance of payments and net international investment position; which are deeply negative. This is the most decisive but slow-acting variable, is often overlooked, and is a long-term dollar bear variable.

More here:
lynalden.com/currency-war/

The second variable is the global dollar liquidity shortage. Offshore entities, especially in EM, borrowed a lot of dollars as the reserve currency with lower rates, and have a high demand for dollars to service that debt. That's a bullish dollar variable.

The third variable is U.S. monetary policy; interest rates and central bank liquidity actions.

For five years from 2014-2019, the U.S. had the tightest policy among developed nations.

This flipped like a switch in September; now the Fed is aggressively printing.

Until the September repo spike, these variables were 2vs1 in favor of a stronger dollar. The global dollar shortage and tight U.S. monetary policy were bullish for the dollar, while the bearish balance of payments variable sat in the background, pushed aside for a time.

However, ever since the repo spike, this became 1vs2 in favor of a weaker dollar. Monetary policy flipped sides from the bull camp to the bear camp because the Fed was forced to monetize U.S. deficits.

I discussed that in this thread:

https://twitter.com/LynAldenContact/status/1210319863522234369

For reasons described in the thread above, these variables will likely be 1vs2 for quite a while, after many years of being 2vs1.

There may be corrections against the trend, but the overall trend is likely bearish for the dollar until the variables get re-arranged again.