The US dollar has been surprisingly weak recently. In fact we are at the lows not seen since just after the US government shutdown when treasury default jitters (see post) sent investors fleeing.Source: barchartWhy is the dollar so weak? Reasons includ…
The U.S. dollar has been the world’s de facto reserve currency for almost 90 years.
But this financial dominance may be nearing its end.
Something strange happened in the market today. The dollar (DXY) and the US equity indices traded lower – together.
 |
| Source: MarketWatch |
Historically one would indeed expect a positive correlation between these markets. After all, a healthier US economy – at least in principle – should benefit both the US dollar and the stock market. And the reverse also holds true. But these are not normal times. Since the financial crisis, the correlation has been consistently negative, making today’s move unusual.
.
+correlation+to+SP500.PNG) |
| Correlation between the dollar (DXY) and the S&P500 (daily returns, rolling 90 day correlation) |
That’s because markets switched into the “RORO” (risk on/risk off) mode after the Lehman collapse. And the dollar has clearly been viewed as a “safety asset” – an asset that rallies in a risk-off scenario (see discussion from 2009).
So does today’s bout of positive correlation point to signs of normalization? Only time will tell. But this relationship is important to watch, as it will signal any major regime changes in the market and a potential shift away from RORO.
From our sponsor:
www.SoberLook.com
This is a syndicated repost published with the permission of Sober Look. To view original, click here. Opinions herein are not those of the Wall Street…
This is a syndicated repost published with the permission of Money Morning – Only the News You Can Profit From. To view original, click here.…
Remember the crowded trade in long USD positions (discussed here)? Well, it’s not crowded any more as many of the longs have been blown out. The sentiment has quickly shifted (of you wonder why, just read this) and the short dollar bias is currently in…
(via AFP) Oil prices slumped on Wednesday, falling to a six-month low under $90 in New York as the dollar rallied on eurozone debt tensions.…
Uh-ho… The Swiss mega-bank UBS completed a survey of 80 central bank reserve managers yesterday. More than half predicted the US dollar would be replaced as the world’s reserve by a “portfolio of currencies” sometime in the next 25 years.
…
Kernen has been negative on gold and missed the move the whole way up.
Rickards left the other guy speechless. lol.
I’m not a big fan of Rickards. I think he was wrong about what he said regarding 1925.
I just thought it was nice that someone who h…
