Euro Uncertainty Fills The Sails Of U.S. Dollar Bulls – ValueWalk Premium
U.S. Dollar

Euro Uncertainty Fills The Sails Of U.S. Dollar Bulls

Article by RCM Alternatives

Perceived political uncertainty in two EU countries over the weekend is thrusting the U.S. Dollar Index higher today – hitting 11 months highs and up 5.6% in just six weeks.

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U.S. Dollar

(Disclaimer: Past performance is not necessarily indicative of future results)

What about the European countries is causing such a reaction in the American dollar? Well, it’s isn’t so much that the U.S. Dollar Index is moving higher, but that the Euro is moving lower. The U.S. Dollar index measures the U.S. Dollar relative to six different currencies including the Japanese Yen, Canadian Dollar, British Pound, Swedish Krona, Swiss Franc, and finally, the Euro Currency, with 57% of the weighting coming from the Euro.

Enter the rise of the 5 Star Movement and the Hard-Right League, Italy’s recent nationalist parties (anti-EU parties) attempting to form a government and Spain’s Prime Minister facing a vote of no confidence, both moves which could impact the countries involvement in the EU and Eurozone, and the heaviest weighting in the Dollar Index (the Euro currency) is now down 7% since mid-April, according to Marketwatch.

What does the mean for other markets?

Well, the short bond folks surely don’t like it – with the rallying dollar wreaking havoc on the higher rates narrative (just when we thought, maybe, just maybe, this time was different and there would be an extended down move in bonds), as prices have reverted back to beginning of April levels.

U.S. Dollar

U.S. Dollar

(Disclaimer: Past performance is not necessarily indicative of future results)

And with the Dow down over 500 points at one point today, this move in the Euro currency and the U.S. Dollar highlights how more than just rates and currencies are involved. It affects stock markets and the commodity markets as well. It affects any and all things priced in US Dollars. For Macro and Managed Futures investors, a trending dollar (no matter the direction) has been historically beneficial (past performance is not necessarily indicative of future results), but as we talked about back in 2016, they’ve never really seen a world in which the U.S. Dollar was trending AND Bonds falling (yields rising). Here’s the quick history of the Dollar and Bonds, as compared to managed futures:

U.S. Dollar

It just so happens the Dollar is trending again, but this time with rates rising (if we ignore the past week or so and look at things month over month). What will the end result look like for macro and managed products investing in mostly dollar-denominated instruments? We’re intrigued, to say the least.  Stay tuned.

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