The current biggest threat to the Dollar's long term health, since the furor over the US housing crisis/crunch has subsided in the forex markets, is the PetroDollar phenomenon. Oil is currently sold in Dollars and many oil exporting countries base their currencies on the USD. Many of these countries have found themselves flooded with cash and are now thinking about greater financial independence from the declining Dollar. For example, OPEC is considering an alteration in the way its oil contracts are settled, by pricing oil in a variety of currencies rather than USD. Members of the Gulf Coast Council are thinking about de-pegging their currencies from the Dollar, due to rising inflation and the increasing opportunity cost of owning Dollar-denominated assets. How will all of this affect the forex market?
It remains to be seen because actual data, not just speculation, suggests that OPEC may be moving towards a greater dependence on the Dollar. 55% of petrodollar investments are made in the US. A distant second is Europe with 18%. How this will affect the forex markets really remains to be seen, but it should be carefully watched in the meantime. Profitable trading in the forex market is dependent on keeping a good ear to the ground to pay attention to nuances in the economies of the different countries and their currencies.
