FUNDAMENTAL ANALYSIS 2. (ECONOMIC RECESSION AND THE FINANCIAL MARKETS)

 Hello traders, the U.S economy has been operating in an environment of low interest rates since the global financial crisis. Since having low interest rates makes borrowing money cheap, this has stimulated the economy and allowed a lot of progress to be made but has also led to an inflation crisis. The global economy was headed into a recession in 2019 following the Federal reserve's decision to raise interest rates. Very similar to today, the Fed feared that inflation was out of control and it was their role to slow down the economy. The Fed raised rates twice in 2018 leading to a severe crash in the equity markets. They were committed to normalizing rates but the economy was not reacting appropriately so they softened their stance in order to recover markets. In 2020, the real economy and the financial markets crashed in a way that no one had seen before. Global supply and demand went to 0, meaning there was no transaction and no flow in the economy. This exposed the severity of weakness in the economy and caused the fed to drop interest rates to 0. Collectively with the U.S treasury the Fed pumped close to 7 Trillion dollars into the economy. Combined with the looming geopolitical pressures with China and Russia, the responsive action by the Fed led to the worst inflation crisis the world has ever seen. Supply chain issues are making goods more expensive to make which is also causing retailers to charge more. Global investors are looking to get out of high risk assets until the storm settles. This is why there's been a massive influx into the USD at the same time as Equity/Crypto/Gold are selling off. Investors are getting out of high risk assets until the storm settles. After the transition these investors will look to enter long duration assets. 

DXY (DOLLAR INDEX)
The DXY is a composite index of multiple currencies, mostly the U.S Dollar (+70%) . This index tracks the performance of the dollar relative to other currencies.

The DXY responded to the FED printing in 2020 by crashing from the highs at 102 down to the 90 level. Markets recovered when the Fed announced they were dropping rates to 0 as well as quantitative easing in March 2020. When the FED announced their rate hikes +quantitative tightening (summer 2021) the USD demand went up drastically and led to a global dollar shortage.

A strong dollar hurts U.S trade with other nations since the cost of goods is higher. The DXY broke the important 104 level and has maintained a bullish trajectory above the 100 zone and is currently at 105. We will likely see a continued push in the dollar until the Federal reserve changes their stance on monetary tightening.