This morning's retail numbers came in better than expected. Once again, the USD gained strength on good economic news. Coupled with the USD's reaction to a much better than expected NFP report last Friday, we begin to see the USD trade on rate expectations and not just on pure risk appetite/aversion.
Any so called USD carry trades might be unwound pretty quickly, helping to lift the USD even higher. At this point, it looks like the USD can gain both on good news (i.e. rate hike expectations) and bad news (i.e risk aversion).
On the technical side, the DXY (dollar index), is poised to test resistance at 76.50 which, if broken, may clear the way to further gains. It is also important to note how the USD behaves differently vs. different currencies. Notice the strong move up against JPY, EUR, GBP (the first in overbought territory, the latter two under fundamental pressure) - and the relatively mild gains against the Aussie and CAD.
US Futures signaling a possible up day for the S&P. An up day for the S&P with gains for the USD will further cement the observations above.
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The power of equities and gold to stay in range inspite of 1% strength in dollar is quite interesting.
ReplyDeleteAre these markets not buying the stength in dollar and expecting dollar to roll away?
U6 - thanks for the observation! it is interesting. Maybe (long shot, but maybe) the markets are pricing in continuing recovery and anticipating rate hikes. In such a scenario, equities and USD can trade up in tandem.
ReplyDeleteBut then, there's still the question of gold.... could it be a long term hedge against inflation?
Gold will continue to rise against most currencies over the medium term imo. The West is in a pickle! The recent strength in the USD looking forward to rates will break down. Our economy and debt load like a plane too full, can't get off the ground. Greenspan is a fool. There's hell to pay. As other economies continue to consume more as we choke on past consumption, only then will players like China break away. It is a slow but inevitable let down. From a USD standpoint, buying gold single handedly will save your a$$!
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