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A Conspiracy Theory Explains US Dollar Weakness

The forex market has always been filled with rumors and conspiracy theories to explain price movements that lack a clear explanation or catalyst. In the current market, the back-off in US yields could explain the recent bout of US dollar weakness. Others may say those looking ahead see a risk on environment continuing as even a lagging Europe gets its vaccine rollout on track. However, there may be more to it.

In recent times, it seems more the exception than the norm to see all currencies move in the same direction. Typically, there is often a tug-of-war that may see two currencies move in opposite directions with the dollar caught in the middle (e.g. GBP vs. EUR, JPY vs. AUD, etc).  However, since the start of the second quarter, the dollar has lost its bid and currently is moving lower across the board,

A Conspiracy Theory

While it is nearly impossible these days to be privy to the flows, there may be a conspiracy theory to explain current dollar weakness. Rising geo-political tensions between the US vs China and US vs. Russia, for example, have been cited as a cause of global markets concern as President Biden’s new administration is being put to a test.

Typically, rising geo-political risks tend to favor the dollar as a safe haven but this has not been the case. A conspiracy theorist might say the risk of US actions, such as sanctions, would encourage some diversification of reserves out of the dollar and into other currencies. For example, if I was in China’s shoes, I would be looking to limit, or even reduce some of its US dollar reserves.

Follow the Real Money Flows

I am not saying this is what is actually happening but with the dollar falling against all currencies and gold rebounding, a case can be made for this conspiracy theory to have some merits. If true, then the dollar should find a limit on its upside or offers on any decent blips.  

In any case, it appears that real money flows are weighing on the dollar, giving rise to this conspiracy theory. In this regard, take a look at the following video to see how a trader can trade by following real money flows.

See how to follow the real money flows.

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