Let’s Measure the USD in Here

Let’s Measure the USD in Here

$.DXY $USO $GLD $XAU

A Key measure of USD is the ICE US Dollar Index .DXY, -0.12%, and it has been weakening over the past 30 days, down 3.9%, but is up a bit YTD, rising 0.1%, according to FactSet data.

The index measures USD Vs a basket of 6 peer currencies, including the EURUSD, +0.03%, the GBPUSD, 0.29% and USDJPY, +0.06%.

A weaker USD has implications for assets and the stock market, including the DJIA and S&P 500 index with most debt denominated in USDs. In addition, a majority of cross-border financing and international trade are conducted in USD.

Worries about the global economy have traditionally encouraged buying of USDs and JPYs along with other safe havens because of the perception of the US as a stable economy and currency.

The market value of USD has an impact on every segment of the economy, including the stock market.

A strong USD is synonymous with falling equity prices, while a weaker USD causes stock prices to rise. The relationship between currency valuations and the stock market is complex. A weak USD is not necessarily good news for investors as it buys less.

Imports become more expensive after a USD devaluation, but foreign companies can acquire American goods at lower prices.

This helps to drive exports North. As exports increase, profits rise and stocks in US companies rise in value. Investors attempting to profit from rising stock prices will shift their cash from bonds to stocks. The increased competition for stocks drives prices higher.

Active traders are sensitive to current economic trends, they help drive up stock prices when USD weakens.

The US stock market includes a variety of funds that trade currencies and assets denominated in USDs.

Some funds try to capitalize on a strong USD by investing in Crude Oil, Gold and USDs.

On Gold

Gold should run North to $3,000 and perhaps before year-end in light of the election year. Yes, a weak USD will definitely help our exports, rising corporate profits and thus have a positive effect on the stock market.

Other funds take a contrarian view and bet against USD by investing in currencies from other countries. When USD declines in value, funds containing foreign currency and assets rise in value.

President Trump wants a softened USD, I am calling it at 76 and have been since the end of December 2019, Monday, .DXY declined 0.6% to 96.71.

Have a healthy day, Keep the Faith!

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.   

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