The Commonwealth of Independent States (CIS), comprising 12 countries, is making significant strides in the realm of local currency payments. This move away from the dominance of the US dollar is reshaping cross-border transactions within the bloc. In 2024 alone, an astonishing 80% of trade between member nations has been settled using local currencies. This trend is not only a response to global economic dynamics but also a strategic decision by these countries to assert their economic independence.

Unleashing the Power of Local Currencies in the CIS

The Impact of Sanctions on Local Currency Payments

The payments in local currencies within the CIS can be traced back to the sanctions imposed by the White House on Russia and Belarus. These two nations, in a bid to sustain their economies and drive forward the de-dollarization initiative, decided to trade mutually in local currencies. This decision has had a profound impact on their economic relationships and has set a precedent for other CIS members. 1: The sanctions served as a catalyst for the adoption of local currencies. Russia and Belarus, being major economies within the CIS, realized the need to reduce their dependence on the US dollar. By trading in local currencies, they were able to insulate themselves from the volatility and uncertainties associated with the global financial system. This move not only strengthened their economic ties but also demonstrated their determination to carve out a new economic order. 2: The success of local currency payments in Russia and Belarus has inspired other CIS members to follow suit. As more and more countries within the bloc recognize the benefits of de-dollarization, the use of local currencies in cross-border transactions is on the rise. This trend is likely to continue as the global economic landscape evolves and countries seek greater economic autonomy.

The Growth of Local Currency Trade

CIS members have witnessed a remarkable growth in local currency trade. In 2024 alone, Russia and Belarus' trade deals surpassed the $37 billion mark, with an impressive year-on-year increase of 8.4%. This is a clear indication that de-dollarization is catching on fast and that local currencies are playing a crucial role in driving economic growth within the bloc. 1: The increase in local currency trade is not limited to just two countries. The 12-nation member CIS has collectively settled 80% of its trade in local currencies this year. This shows the widespread acceptance and adoption of local currencies as a medium of exchange. It also highlights the potential for local currencies to compete with the US dollar on a global scale. 2: The growth of local currency trade is not without its challenges. There are issues related to currency convertibility, exchange rate stability, and infrastructure development. However, these challenges are being addressed through collaborative efforts among CIS members and international financial institutions. The future looks promising as these issues are resolved and local currency trade continues to expand.

The Significance of De-Dollarization

The de-dollarization initiative within the CIS is of great significance. It represents a shift in the global economic order and a challenge to the dominance of the US dollar. By promoting local currencies, CIS countries are seeking to reduce their vulnerability to US economic policies and to establish a more balanced and diversified global economic system. 1: De-dollarization allows CIS countries to have more control over their economic destinies. They are no longer at the mercy of US monetary policies and can make decisions based on their own economic interests. This newfound economic autonomy gives them the flexibility to pursue growth and development strategies that are tailored to their specific needs. 2: Moreover, the use of local currencies in cross-border transactions promotes regional economic integration. It encourages trade and investment among CIS members and creates a more cohesive economic bloc. This integration has the potential to boost economic growth, create jobs, and improve the standard of living for the people of these countries.

Last week, the French political drama took center stage as the government resigned following a no-confidence vote. Surprisingly, the anticipated disaster on the CAC 40 did not occur. The French stock market is now breathing a sigh of relief as the feared extraordinary tax on major corporate profits did not materialize. Meanwhile, the euro is staging a modest comeback.

Financial Market Insights: The French Situation

Financial market veterans understand that there can be a significant difference between what is likely to happen and what actually does. In the case of France, while the risk premium is high due to the chaotic domestic situation, last week the CAC 40 recorded its best advance since September and erased the losses of the last three weeks. This serves as a reminder that it is always prudent (and worthwhile) to watch the market's behavior after each major news item and ensure it aligns with one's expectations before taking a position.

The Dollar Index and Its Resistance

As it stands, the dollar index has stumbled upon our resistance zone at 108.00 and has already closed below the first support at 106.14. This gives some credence to further consolidation. It is important to closely monitor these market movements as they can have a significant impact on various currencies and financial assets.

The Euro's Reversal Pattern

The euro is holding on to its lows at 1.0335 and, more importantly, is forming an inverted head-and-shoulders reversal pattern. This pattern will be validated by a move above 1.06, with a theoretical target of 1.0860. For now, we will settle for a first target at 1.0725/80. Keeping a close eye on these trends is crucial for investors and traders.

USDJPY and USDCHF Consolidation

USDJPY and USDCHF continue to consolidate. The former is still expected to head for 147.90 or even 145.90 if it holds below 152.95. The latter is attempting to validate a bearish pattern, again in the shape of a head-and-shoulders pattern, with downside targets at 0.8730 and 0.8660/30. These currency pairs are showing signs of stability and potential for further movement.

Commodity Currencies and Their Trends

AUDUSD was unable to break above 0.6555 (adjusted point at 0.6525) and remains in its downtrend since October. However, we will be keeping a close eye on the current support zone at 0.6422/0.6395, which corresponds to the line that has joined the lows since September 2022 to halt the downward momentum. The NZD/USD configuration is not much different, and we will be watching for initial resistance at 0.5930 to halt the current fall. If support at 0.5810/0.5790 is effective, it could halt the decline. Otherwise, we will target 0.5635. These commodity currencies are facing challenges but also offer potential trading opportunities.