Chart Of The Day: Euro Heading Toward USD Domination? Not Quite Yet

 | Jun 10, 2020 10:11AM ET

The US dollar retains its hold on the position of global reserve currency for two reasons. For starters, the United States is considered the most financially stable country in the world, thanks to its political system and military might. As well, it's still the world’s largest manufacturer and was, for many decades, also the biggest global exporter.

However, in 2017 China became the world’s largest exporter, and Germany is now not that far behind the United States on this measure. All of which diminishes the need for such a high global quota of dollar reserves.

To that effect, in 2018 China launched oil futures contracts denominated in yuan, in part, to try and replace the US dollar’s currency reserve domination. For that matter, Germany's economic strength could end up powering the eurozone's single currency to reserve status in place of the greenback if current political instability in the US worsens or the Trump administration's propensity for trade wars escalates, perhaps acting as a catalyst for a global restructuring of commerce.

It's possible too, that since the Fed's unprecedented money printing is, well, unprecedented, it increases the risk of a financial meltdown, as people lose trust in a system that relies solely on trust, rather than gold—as has been the case since 1971—when Nixon abandoned the gold standard.

Right now though, the dollar still dominates. Even from a technical perspective, if there's a battle between the euro and the dollar, the long-term charts favor the USD.