The Greenback Wags the Markets

Oakville, ON, Canada – Action in the global equity markets, and in particular, those with a commodity focus such as Canada’s was largely impacted by moves in the US dollar index. The greenback ended the week strong, up almost 1.5% against a basket of major currencies, such as the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

According to Portfolio Manager and President Robert “Hap” Sneddon, the correlation between the USD index of the global equity trade is near perfect. “At 90 some-odd percent inverse correlation it doesn’t take a genius to now see that we are in a large carry trade. The relevant and only question now is was the last week’s end of week rise a one off or a reversal?”

From a weekly note to clients (chart removed)

Once again the greenback makes it to Chart of the Week in consecutive weeks. The US dollar, represented above by the chart of the dollar index (DXY.n), showed further signs this past week of a possible price reversal. It moved a greater distance from its 50 day moving average, clearly broke above the MACD “0” line, and closed strong on the week on a price basis. The stochastic reading, a momentum indicator, closed above 80, suggesting that buyers of the greenback may become tired in the near term, allowing for consolidation. If the trend pushes up it may imply a halt to the rise of global equities as the correlation between a falling dollar and rising global equities is nearly inversely perfect (94%). Next resistance is at the 200 day MA near 80. 

 
For more information or interviews, please contact Matthew Bergin (905) 847-1955 or matthew@castlemoore.com CastleMoore is a Canadian-based global asset allocator specialising in progressive discretionary portfolio management that blends technical and macro fundamental methodologies to manage client portfolios. CastleMoore Inc. Buy, hold and know when to sell.