July 20, 2018 23:25: Trump attack that is certain to boomerang [From Mr. Rikio Shima's newsletter]
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On the 20th NY time, the dollar was sold following President Trump’s Twitter post, and USD/JPY tumbled to the early 111 yen range. What does the legendary trader Rikkoh Shima (Rikio Shima) think about Trump’s remarks that moved the forex market so much?
Since yesterday, (1) complaints about the Fed’s tightening path and infringement on central bank independence; (2) tariffs on all imports from China and escalation of the trade war; (3) accusing other countries’ monetary and exchange-rate policies of currency manipulation.
First, (1) is unacceptable. Saying don’t raise rates ignores future inflation risk. The fact that long-term interest rates are stable is because raising rates signals that central banks will control inflation; this fact is not understood.
Trump’s remarks could threaten the stability of U.S. long-term rates. The market positions betting on a narrowing of long- and short-term rates have accumulated too much, so aandacht should be paid to a rise in long-term rates (decline/crash of U.S. Treasuries). Someone is likely to trigger this. A rise in long-term rates could destabilize stock prices and push the dollar higher.
(2) would raise domestic inflation in the U.S. Clothing makes up a large portion of imports from China, so the prices of gaps (and other items) will likely rise. In other words, it could eventually become a factor supporting a stronger dollar.
(3) Trump’s remarks caused the dollar to fall, but outside of China there has been no currency manipulation. The current exchange rate is determined by various past developments. Strong objections are expected from Europe.
From “Shima Rikio’s Real-time Practical Trading” (Rikio Shima) quoted.
According to Shima, this drop could become a buying opportunity, and it is highly likely to move in a direction opposite to Trump’s intention (to devalue the dollar). (Editorial staff)
USD/JPY, 1-hour chart.
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