Although the US 10 year moved back above the 3.00% level (trades at 3.019%), and slower than expected housing starts (building permits were higher however). Despite higher oil and Natural gas, there was a flow of funds out of the safe haven USD and JPY, and into the more risky NZD, AUD. Looking at the strongest to the weakest the AUD and NZD were the strongest and the JPY and USD were the weakest.

The USD has now seen 3-day declines vs the EUR, GBP, CAD, AUD and NZD. If it weren't for a late day rally in the USDJPY it too would be on a 3-day down trajectory (it is still hard to sell USDJPY with the divergence of the Fed vs the BOJ).

Helping the selling in the USD is the focus on the other currency and central bank policy. The minutes from the RBA reminded traders that until inflation is kicked, they are not giving up. The RBNZ is in that same boat, and the BOC raised rates by a surprise 100 basis points last week.

The chatter today in the European session was that the ECB would be considering a 50 basis point hike. That helped to push the dollar down further and the "other currencies" in the spot light for a change.

Yes, the Fed is on it's own rate hike course, but the markets have largely priced in a 3.5% to 3.75% end of year rate. That may not be the case for other countries.

A benefit of the lower dollar is it helped to support US stocks today.

Today, the major indices all moved sharply higher, led by the Nasdaq index. A look at the final numbers shows:

  • industrial average rose a 754.44 points or 2.43% to 31827.06
  • S&P index rose 105.84 points or 2.76% to 3936.70
  • NASDAQ index rose at 353.11 points or 3.11% to 11713.16
  • Russell 2000 index rose 60.90 points or 3.50% to 1799.326

The earnings season is just getting underway, but it is expected to be characterized by impacts from the stronger USD with the large multi-nationals the most vulnerable.

Microsoft warned earlier in the quarter. Apple is thought to be slowing hiring and asking its business units to cuts costs. That is the normal reaction to lower revenues from a higher dollar.

The opposite may be the catalyst for a rebound in stocks going forward and is what drove stocks higher today. That is, if the dollar has peaked and is set to fall in the short or medium term, that could just what the doctor ordered to turn stocks around. It would make US goods cheaper abroad and also provide a profit boost to overseas profits.

With equity markets oversold and investors are now under invested, a lower dollar could be the match that lights the fire.

Adam sent me the following chart today showing the net % of investors taking higher than normal risk. The levels are at the lowest level since 2008.

Stocks
Stock risk levels are at all time low levels.

Be aware. If the dollar has peaked and starts to move lower, expect stocks to move back higher.

Other levels near the 5 PM close:

  • Gold rose $1.85 or 0.11% at $1710.86
  • Silver is trading up five cents or 0.26% at $18.73
  • WTI crude oil for August delivery is trading at $103.75. Recall just last week it reached a low of $90.58
  • Bitcoin continued its run to the upside and currently trades at $23,264.50
  • two year yield 3.24%
  • 10 year yield 3.03%
  • 30 year yield 3.184%

Good fortune with your trading.