Practically nobody enters the foreign exchange markets looking to buy and hold. Currency trading is generally a short-term game, and there isn’t much regard for analysis of the longer-term fundamentals.
That much is evident given the ongoing rally in the Federal Reserve Note dollar, despite its outlook being downright grim.
Nobody should be fooled by recent outperformance relative to the currencies of other insolvent nations.
The greenback is in the worst shape of its life.
Sound money advocates are already well versed as to why the dollar has been losing purchasing power ever since the Federal Reserve took control of its fortunes more than a century ago. They understand the implications of perpetually rising federal deficits and debt.
The most recent decade, during which federal borrowing has begun growing exponentially, indicates we are much closer to the end of the cycle – insolvency and default – than we are to the beginning. But it isn’t the only indication that we are approaching the end-game.
The Federal Reserve Note’s hegemony in the global oil trade is starting to fall apart. Russia, China, and other BRIC nations are cutting deals to buy and sell oil using other currencies.
We can now add the EU to the list of potential defectors.
European officials who do not support American withdrawal from the nuclear deal with Iran, or the renewed sanctions, are considering buying Iranian oil with euros. It will be a very big deal if Europeans follow through and make large scale oil purchases using anything other than the dollar.
Reuters reports the decision to resume sanctions on Iran has led to a spike in trading activity of Chinese crude oil futures, which are denominated in yuan. Trading began in this market last year and volume has been growing steadily. When sanctions were announced, the volume doubled overnight to a record 250,000 contracts, which represented 12% of the global trade in crude.
If the Chinese oil trade continues at the rate of growth it has had over the past year, the world is only a few years away from the “petro-yuan” taking the place of the “petro-dollar.”
