FxWirePro: Which FX theme could beat inflationary pressures and global economic crisis?

Bitcoin bounced back above $4,000 mark a coin against the dollar just at around 11:00 am GMT. But, prior to the rally, the cryptocurrency has slumped slightly below $4,000 area. 

As per few analysts’ reports, skepticism is still lingering, the Bitcoin has still not proven itself to be a viable safe haven for investor assets. After various dubious perspectives, a question strikes shrewd investors mind. Is the cryptocurrency in reality immune to the inflation?

It’s a feature of the low-inflation era that very few governments or central bankers want a strong currency. That’s just one reason why Bitcoin is doing so well. Strong currencies depress inflation, at least temporarily, and if their impact on competitiveness is exaggerated, it’s still enough to make them take the blame for jobs being lost to other cheaper-currency producers.

But what about hyperinflation caused by confidence crisis?

Currency system seems to be worthy only when the willingness to accept it as a medium of exchange. How much would a bitcoin be worth is exactly how much goods would people accept to trade for one unit of Bitcoin. Just in case, in the real market sentiment begins that bitcoins are worthless, its purchasing power likely to weaken, consequently the inflationary issues crop up.

Once upon a time, all this was offset by a sense that a strong currency was a sign of national virility, but such superstition is passé. It’s all about a total eclipse of the sun, today.

The problem with no-one wanting a strong currency is that someone has to lose out. This year, the winner in the FX stakes, (or loser, in a topsy-turvy world where a strong currency is no kind of blessing) is the Mexican peso, reflecting two of the main underlying themes in markets: Trump deflation and the strong current of cash flowing towards emerging markets.

The strength of the Zloty and Koruna reflects the fact that the real winners from the European economic recovery aren’t in the euro area but are countries held back by European policies. SEK and NOK both still look like winners.

Wariness of a further euro clear-out makes Sterling an easier short than the euro in the short run. It was last week’s worst G10 currency but shorts in GBPSEK and GBPNOK still appeal, and short GBPCAD or GBPAUD is more attractive than short GBPUSD or EURUSD.

For the wider dollar story, as for EURUSD, Societe Genarale found plotting relative yields against EURUSD and DXY interesting. The DXY chart, against DXY-weighted 10year real yield differentials, is still correlating furiously and suggests for the entire world that the dollar’s short-covering bounce is running out of steam.

When US 10year yields are opening just under 2.2%. Contrast it with the EURUSD chart, thereby, it is seen that no encouragement for a euro bull at all in the short-term. That doesn’t stop me being a long-term euro bull but it does suggest that the wisest path this week and next, may be to be long neither euro nor dollar which is probably good news for EMFX in general, as well as for AUD CAD, NOK, and SEK.