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By tradition, because of its close connection with the U.S. Treasuries, the USD/JPY has been known as a currency pair. When the treasury bonds, notes and bill increases, USD/JPY prices decline.

On Tuesday, the greenback touched one month decline against the yen, staying on the defensive, after the latest U.S. economic statistics were seen possible to restrain the forecasts of a short term Fed Reserve interest rate hike.

The dollar declines 0.8% to 100.43 yen and hit a low of 100.355 yen at one point, the dollar lowest point against the yen in over a month.

On the chart below, the currency pair nearly  break out with the resistance level of 101.938 and support level of 99.004, followed by the sharp decline at 99.789 on August 16, 2016.

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And then again, last Friday, August 12, 2016, The dollar fell, locking in a small weekly drop against its main competitors, as a number of unsatisfactory U.S. economic data directed investors to reduce their anticipations for the scheduling and pace of Federal Reserve interest-rate hikes.

However, on August 5, 2016, The dollar increases after a strong report on July employment growth was perceived increasing the possibility of a Fed interest rate hike before the year 2016 end.

There are two main reasons, aside from other things to consider,  that could generate a U.S. dollar downfall. China could attain reserve currency position for the yuan, weakening the significance of the U.S. dollar and U.S. stock markets could collide. Reserve currencies are fundamentally the support of international finance.

Another thing to consider is  whether the Fed is going to increase interest rates again this year or not. At the beginning of the year, the Fed Reserve has marked in four quarter point rate hikes for 2016. Together with a bad decline in energy prices, caused in one of the worst ever beginning of the year.

One possible influence in a U.S. dollar downfall in 2016 is the increase of the yuan. China’s currency is increasing more and more important in world affairs. Allowing China reserve currency status would signify its superiority in the world order.

On the other hand, currently, there are  seven reserve currencies in the world, but none of them come close to the U.S. greenback. As a percentage of stock shares, the U.S. greenback accounts for over 63% of currency reserves, distantly followed by the euro at 21%.

Decades ago, currency reserves were made up of British Pounds Sterling, French francs, and German marks. The weakening of the British Empire came favorable to the U.S.

But with all the problems going on right now, is there a possibility that U.S. Dollar would collapse in 2016? It may sound not possible, but it is not impossible at all. Now that China has beaten America as the biggest merchandise trader around the world, this could mean the yuan might be destined to be the next primary currency. If things won’t pick up for the U.S. Dollar, then the possibility is there!

But let’s give it a benefit of the doubt, even if the situations have changed, we still need to consider all the potentials that U.S. Dollar might pick up again, not easy but possible, especially for the U.S. Government!

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Conclusion: When a country rules world trade, it becomes the world’s primary currency. China’s moving up to reserve currency is all but certain. The International Monetary Fund has assured a decision on the country’s application for reserve currency status by the end of 2015.

If China is successful, it’s honestly possible we’ll see a U.S. dollar downfall in 2016. However, China is facing some difficulties of its own that could turn the International Monetary Fund against them. 

And if the Fed increases interest rates while other central banks keep or even lower their interest rates, then the return on savings is more striking in the U.S. than in other nations. Given this higher rate in the U.S., international capital should move from other countries to the U.S., causing in the dollar's increase.

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