This continues to be an intermarket relationship that I watch: of late, the U.S. dollar has shown strength, even as stocks hover near bull market highs. We've seen new 20-day highs expand to over 1400 on Monday, with small caps picking up some relative strength and solid action in the advance/decline line.
During much of the bull move from March, we saw strong stocks accompanied by a weak dollar, as low interest rates in the U.S. pushed traders and investors into risk assets. That regime appears to have shifted, as more favorable economic news has been accompanied by firm stocks and a firmer dollar, with rates on 10-year Treasuries now above 3.6% (up from 3.2% at the end of November).
If so, that should augur well for bulls early in 2010.
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3 comments:
One way I see it is that EUR weakness don't necessary mean USD strength. Have a look at USD/CAD, AUD/USD is also sitting in a tight range.
Japan is flooding the market with JPY, so USD/JPY is just showing some dilution effect.
Off Topic:
I've been working on an method to better my decision making process based upon your post(s) of using the "executive center" of the brain to identify market themes and formulate coherent trade ideas.
I call it the Slinky Effect
http://implicittrading.blogspot.com/2009/12/slinky-effect.html
Those long term rates (TNX) are a headache arent they... one moment they're too high (>3.8%), the next moment too low (<3.3%).
From a certain perspective, given the high likelihood of a jobless recovery, whichever way the TNX breaks, equities are doomed? lol
I guess that's what the treasury market is thinking.
Sometimes I look at markets and wonder if people really think:
"Gotta sell the dollar man! They're printing like crazy! Put them into other currencies and commodities! Oh dammit, equities will do as well! Don't forget Gooooooooooooold!!"
the next moment;
"Geez! Dubai & Greece! Oh my goodness, there's Italy, Spain, Portugal & UK too! Darn it, at least we know what those idiots at Washington are doing... who the heck knows what the ECB is going to do with all their internal politicking!?"
"Huh? The Fed getting audited? That means less printing right? Get me the crap outta Gold!"
"WHAT!? Berlusconi gets whacked with a statue?! Who's next!? Get me some dollars!"
Alright, enough of imaginary dialogues & connecting pointless dots.
Darn it, these slow days are driving me nuts.
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