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Posts Tagged ‘dollar carry trade’

All Eyes on the U.S. Dollar Index

Posted by Larry Doyle on December 7th, 2009 9:22 AM |

What’s leading the market both up and down?

Regular readers here at Sense on Cents are fully aware of my focus on the U.S. dollar as the primary driver of our markets over the course of the last half year. This past summer, the BRIC nations regularly railed on our greenback as the international reserve currency. Japan jumped on that bandwagon, as well.

The pressure on the greenback supported by the Fed’s easy money policy served as the fuel that launched our markets from the intermediate pullback experienced in early July.

Check out the patterns in the U.S. Dollar Index versus the movement in the S&P 500 since early July. These indexes are almost mirror images of each other. While the order of magnitude is not exact, the direction is very highly correlated.

I certainly believe this correlation will continue and rest assured active traders on Wall Street are watching this relationship closely as well. In fact, what happened overnight? Equity markets traded off as the U.S. Dollar Index continued to firm. (more…)

Dollar Carry Trade Remains in Vogue

Posted by Larry Doyle on December 4th, 2009 3:47 PM |

Today’s price action in the markets is very telling. What is it telling us? The dollar carry trade remains in vogue and technicals continue to dominate overall flows much more than fundamentals. Let’s navigate.

Recall that the weakness in the U.S. dollar has facilitated a large number of hedge funds, market speculators, and to a less extent investors to borrow dollars and buy a variety of risk based assets. What assets? Equities, a wide array of bonds, a basket of commodities, primarily gold. How are these sectors performing?

After an initial spike of 1-1.5% across the equity markets, these major market averages have retraced and are now effectively unchanged to slightly better on the day. Is that a sign of investors not believing in the details of the employment report? No, anything but. In fact, I believe the equity performance today is quite strong given the fact that the dollar has increased by 1.6%.

Bonds have traded in a very narrow range. Interest rates moved higher by approximately 12 basis points (.12%) and have sat there almost all day. The question that now comes back front and center is when the Fed will decide to raise rates. While most analysts had written off the possibility of an increase in rates prior to 2011, now analysts are projecting that the Fed may raise rates by mid-2010.

If rates do rise here, what does that do for our greenback? It will do better and it is doing just that today. As I referenced the U.S. Dollar Index has increased by 1.6%. (more…)

Dollar Carry Trade ‘Still’ Drives Global Equity Markets

Posted by Larry Doyle on November 9th, 2009 3:10 PM |

Has anything truly changed in our economy or markets over the last two months? Market analysts would attempt to gain credibility by overanalyzing each and every piece of data that comes along, but the very simple fact is that little has truly changed since I wrote “Dollar Carry Trade Drives Global Equity Markets” on September 16, 2009.

With the equity markets making new highs for the year, I am not so foolish as to ‘fight the Fed’ or ‘fight the tape’ while fully appreciating that the foundation of our markets and economy remain extremely fragile. In that spirit, what is driving the market ever higher? I resubmit my post mentioned above:

All aboard!!

As the U.S. Dollar Index makes new lows, equities make new highs and the momentum continues. Where is the ‘juice’ coming from? Is this cash that had previously exited the market now reentering? Is this people who had gone short now being forced to cover? Is this ‘new’ money finding value? Is this a pickup in short term day trading? The answer to all of these questions is yes, albeit to varying degrees. However, the most widely held belief for the rally in the market is the dollar ‘carry trade.’

I highlighted this trade last week in my September 12: Month to Date Review of the Markets. On that day, I wrote about the U.S. dollar: (more…)

The Modern Mystic Reads from Sense on Cents

Posted by Larry Doyle on September 22nd, 2009 6:47 PM |

How can we measure just how small the world has become? When a commentary I wrote a few days ago becomes the topic for a public reading displayed on a YouTube video produced in France, it’s a small world after all.

I have to admit, I chuckled this morning upon viewing the video in which a man who uses the pseudonym “The Modern Mystic” talks about the dollar carry trade. In so doing, he actually reads my commentary from September 16th entitled “Dollar Carry Trade Drives Global Equity Markets.”

I am flattered that ‘Modern Mystic’ would read my work while simultaneously critiquing it and adding his own insights. His surroundings only add to the allure of this clip. If you care for a bit of a chuckle while taking a virtual trip across the pond, this 12 minute clip is rather amusing.

Now, if I could only convince the Mystic to acknowledge me and Sense on Cents, perhaps the next clip may may be the big screen . . . (LOL)!!

Enjoy.

LD






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