Tuesday, September 08, 2009

Why the U.S. Dollar Drop Might be Significant

In early morning trade today, we see the U.S. dollar break to new lows against the euro (top chart), on the heels of the earlier downside break vs. the Aussie dollar (bottom chart). That has contributed to a lift in oil and gold prices, a rally in global stock markets, and particular strength among the shares of raw materials companies (see here).

Why is this potentially important?

The passing of Labor Day has traditionally signaled the end of summer and the slow summer trade. Institutional traders are back from their holidays and are looking to put money to work to finish their years with a flourish. Money managers that have underperformed market averages feel particular press to put their capital to work.

The intermarket themes and trends that we see coming out of this post-holiday week might give a clue as to *how* this capital will be deployed. So far, it's not bullish for the U.S. dollar.