It stopped making new lows.
If you look at the monthly chart below of the “Dixie” (Dollar index), the gist of it is that Dollar has largely gone sideways over the past few years. I recognize that against select currencies, such as the Japanese Yen, the Dollar has made lower lows. However, the overall picture points to a Dollar that is making up its mind where its next big move is going to be after a huge plunge from 2002 to 2008.
The reason why I am discussing the Dollar here is because there still seems to be an inverse correlation present with stocks. Thus far in the month of May, the Dollar has been very strong, while we know equities have corrected. On the Dollar index chart below, you can see that the greenback is pressed just under a major resistance trendline. After some loose and sloppy action in recent years, the pattern is firming up and basing.
The case for being a Dollar bear is a relatively easy one given The Fed’s propensity towards an easy monetary policy. Perhaps, though, that thesis is too easy. To my eye, there are too many known unknowns to just assume that the Dollar is on a perpetual slide lower. What would catch the majority of participants off-guard–A rising Dollar or a sinking one? If so, will the inverse relationship with equites persist? Those are the trillion dollar questions.
For now, though, I believe the Dollar bulls have as good a shot as they have had in years to capitalize on a legitimate breakout. Stay tuned.
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You would think that all Greeks are buying dollars and Euros with their savings just in case Greece leaves the eurozone. Maybe just a drop in the bucket but then Spaniards and Italians might follow
Blame Obama – he has a strong dollah policy! 😉
Meanwhile the guy who shorted the dollar in 1992 is 20 years into a losing trade, even after trillions of dollars being printed.
I think what would screw the most people up is if we revert to the previous correlation of dollar up, equities up. Inverse correlation has only been around since about 2002. But so many thing are programed to respond to that inverse correlation. You know if Europe announced trillions in QE the Euro would spike and the dollar would fall, just because that’s the way we’re programed right now, even though it makes no logical sense.
“..What would catch the majority of participants off-guard…a rising Dollar or a sinking one?”
Chess, here’s one answer to this question, current at least as of the close on Thursday (hopefully still current enuf to be useful).
“Forex trading crowds continue to buy aggressively into Euro weakness against the US Dollar. The FXCM Speculative Sentiment Index shows there are 1.25 retail traders long eur/usd for every one short, and this ratio represents a substantial shift from last week as the number of traders long has surged over 40 percent in 7 days.”
(Note, that is freely-published info, no subscriber confidence violated..)
great view, i often wonder why gold isnt 5000, but if everybody races to the bottom,i guess thats how come it isnt valued at more of a premium . gold has to be bought with something. oil and gold used to track together (seamingly). then decouple for a while then back. i started a pos in gld yesterday will buy more…