ONE-TWENTY TWO: Trading Financial Markets
Exploring the poetry in financial markets for students of money and economy since the year 2000.
A catalyst for working off the market’s over-extended and over-bought conditions remains elusive. The Federal Reserve’s latest monetary policy statement essentially blessed the market’s stubborn “melt-up.” The statement did not provide the incremental “hawkishness” as I was expecting given last month’s surprise discount rate hike. In fact, this statement’s reference to low rates for an … Read more
INTRODUCTION When I first picked up “Making Sense of the Dollar: Exposing Dangerous Myths about Trade and Foreign Exchange” by Marc Chandler, I thought it would unlock dark secrets explaining how and why the dollar has generally declined for the past ten years. I was disappointed to discover that Chandler is actually extremely bullish on … Read more
The inverse correlation between the U.S. dollar and the stock market has snapped back into play with a vengeance since the 15-month closing highs for the S&P 500 set on January 19th. On that day, the dollar index rose for a second day, forming what was to become the bottom of a small pullback in … Read more
The Royal Bank of Australia (RBA) surprised markets by leaving rates unchanged at 3.75%. Forecasts pegged the RBA for another 25 basis point increase. The markets reacted with an instant and steep drop in the Australian dollar against all major currencies. For example, the Australian dollar dropped over 1% against the U.S. dollar. (See chart … Read more
The U.S. dollar index is only trading back to levels from last summer. However, from a technical standpoint, the dollar has broken out: the short-term downtrend has ended, and the current move has considerable upside potential. *Chart created using TeleChart: The chart above shows that the dollar’s break below the 200DMA in May led to … Read more
I did not think I would consider (this soon) whether the dollar’s short-term downtrend is ending. I thought this month’s unemployment report put an end to the dollar’s relief rally, but the dollar has surged in the past 3 days to recover all its losses since the most recent peak in mid-December. Even the Australian … Read more
The dollar’s recent relief rally stalled out December 23 (see chart below), and December’s disappointing jobs report may have officially ended it. The apparent working thesis supporting the dollar’s relief rally has been an expectation that an imminent recovery in the labor market would motivate the Fed to raise interest rates sometime soon. December’s disappointing … Read more
As the U.S. dollar index has steadily advanced this month, the relative strength of the Canadian dollar has perplexed me. The Canadian dollar has long seemed overplayed to me as a commodity-positive play given the country’s heavy dependence on the health of the U.S. economy – which I continue to assume will perform weakly in … Read more
By now, everyone has noticed that the inverse relationship between the stock market and the U.S. dollar has broken. For December, the U.S. dollar index is up a healthy 4.7% while the S&P 500 is up 2.1%. I created two charts to demonstrate the dramatic nature of the change relative to trading before December. The … Read more
“Tricks are for kids he plays much gigs He’s a big bad wolf and you’re the three pigs He’s a big bad wolf in your neighborhood Not bad meaning bad but bad meaning good“ “Peter Piper” – Run D.M.C., 1986 from the album “Raising Hell” What was once bad is now good. Or maybe what … Read more