Friday, May 29, 2009

Commodities, the U.S. Dollar, and Reflation

We tend to forget that every trade is a pairs trade. It's just that we tend to keep the denominator constant, in local currency. The fact remains, however, that an asset class can rise either because it is strong against all currencies, because the local currency is weak, or both. Lately, commodities have been hitting new highs (top chart; DBC) as the bullish U.S. dollar index ETF (UUP; bottom chart) has been hitting new lows. Reflation seems to be the theme of the moment; I am closely tracking its impact upon interest rates and stocks.

1 comment:

Jorge said...

Dr. Steenbarger,

One "disadvantage" that Europeans that trade in the US markets (or vice versa) have is that even though we keep both accounts and P/L records in USD, we pay our bills in Euros (pounds, etc.)

This poses an additional challenge when trading (should I hedge? how much? is this hedge becoming a position of its own?), but has the "advantage" of forcing us to increase our awareness of inter-market relations.

Looking forward to your seminar. Best trading,