The scene is set for a sharp move lower in the US dollar. Sentiment on USD is bullish and the Commitment of Trader report is reflecting a large speculative net long position in the dollar. The Trump administration is watching as his tax cut plans and surge in fiscal spending now take effect. The US budget deficit will exceed $1 trillion in 2019 or 5% of GDP, while the US economy operates near full capacity. The deficit is going to explode higher when the next recession hits. The Federal Reserve is due to increase short-term interest rates on Wednesday to 2.25% but with the US yield curve close to inverting, Jerome Powell may not have much more room to tighten. The USD broke sharply lower yesterday, a potential major inflection point for the world’s reserve currency.
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