Domestic Dixie Divergence

__________________________

The U.S. Dollar seems to be the butt of many jokes these days, and has been for quite some time. While I can understand why, it is important to not let that adversely affect your market analysis. We know there has been an inverse relationship between the Dollar and most risk assets, as a weak Dollar has been seen as a windfall for commodities, multi-nationals, etc.. Generally speaking, a stronger Dollar often denotes risk aversion as investors flee too “safety” When you think about how long this trade has persisted in the face of the constant bashing of the currency, it is on the level of black comedy in the sense that investors are suffering from battered spouse syndrome, or Stockholm syndrome, depending how you view it.

Either way, there remain plenty of folks rooting for an unending decline of the Dollar. However, looking objectively here, we can see that over the past six months the Dollar has made an effort to scallop out a major bottom. Whether it holds or not remains to be seem, along with that inverse correlation to risk assets. Frankly, I see very few, if any, market watchers looking for a sustained uptrend in the Dollar. When you factor in the improving technicals, that is a scenario I do not want to rule out.

If the UUP can move higher off of this $22 level, I suspect the number of investors/businesses/traders caught off-guard will be surprising. In other words, don’t fall asleep on the Dixie.

__________________________