Markets Up, Dollar Down, But Will It Continue?

Since the beginning of September world markets have been dancing to the tune of the US Dollar. When the dollar rose, stocks, commodities and precious metals fell. But now that the dollar is falling, all risk assets are rising. For now at least it looks as though that trend will continue as the dollar has momentum to the downside and the stock market has momentum to the upside.

6 month chart of the US Dollar index with the S&P 500, FTSE 100 & the Copper price overlaid

Chart courtesy of StockCharts.com

Longer term I’m very bearish on the US dollar but shorter term I’m even more bearish on the Euro – especially since the Eurozone rescue package is highly likely to involve massive money printing – and because the US Dollar Index is heavily weighted to the Euro (58%), the dollar could remain in rally mode for a while yet.

1 year chart of the US Dollar Index with trend channels overlaid

Chart courtesy of StockCharts.com

As this chart shows, the dollar index looks to have established a new uptrend channel (green lines). However, with the stochastics still pointing sharply down and a nice gap beneath the current price and the lower support line, we can expect the dollar to continue lower in the short-term. Which is of course bullish for stocks, commodities and precious metals.

Big Picture

Once a sticky plaster has been applied to the problems of the Eurozone, I expect attention to shift to the massive debt problems over in the US – at which point they too will reach into their medical kit.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>