Nutaw Somsuk
Some things can’t be measured in dollars.It showed bottoming action, producing another “golden cross” – a situation where the 50-day moving average crosses the 200-day moving average from below, which is a long-term signal of a change in trend – in this case, the up (All red arrows below indicate such events).
Conversely, the dreaded “death cross” occurs when the 50-day moving average crosses the 200-day moving average from above, signaling a change in trend. down (In case of blue arrow below).
Charts are provided for illustration and discussion purposes only. Read the important reveal at the end of this review.
The dollar’s strength precedes or coincides with a sell-off in stocks and other risk assets, as the greenback is generally viewed as a safe-haven trade.
in the final golden cross USD (third week of September 2023), the stock market selloff continued for another five weeks until the end of October.
In the August 2021 golden cross, the stock market did not peak until January 2022, but the sell-off lasted quite a while, until October 2022.
I don’t think we’re going to have a bear market like we did in 2022, but I would say based on recent history, there could be some type of correction as far as the dollar is concerned.
To make matters even more complicated, during Robert Rubin’s tenure as Treasury Secretary (January 1995 to July 1999), we experienced both a significant rise in the dollar and a significant rise in stock prices, so a strong dollar was not always is the most important. This bodes ill for the stock market, although it has certainly been the case in recent history.
On the other hand, this could just be a case of euro weakness. As multiple currencies merged into a common currency, the euro became the largest component of the U.S. dollar index, accounting for 57.6%.
One of the reasons the euro has been able to retreat further is the war in Ukraine, where the Ukrainians are not going well as they fight a more powerful adversary due to delays in critical aid and shortages of ammunition and soldiers.
There is no evidence that Ukraine had anything to do with last week’s terrorist incident near Moscow. ISIS-K in Afghanistan has taken responsibility for the operation, but that doesn’t mean Russia won’t use it to ramp up pressure on the battlefield, which may be their intention as spring offensives are the norm.
Any significant Russian advances in Ukraine would be negative for the euro as investors extrapolate the long-term cost of the war and when or how it will end.
France has been very active in proposing sending NATO troops to Ukraine – a view not shared by most of France’s allies. I certainly hope France does not do this, as it would double the likelihood of conflict spreading from Ukraine, which would be negative for the euro.
Charts are provided for illustration and discussion purposes only. Read the important reveal at the end of this review.
Last but not least, the Chinese yuan is not part of the U.S. dollar index (DXY), but it certainly has a significant impact on the U.S. dollar.
The RMB is a managed currency. It cannot float freely. The yuan was volatile last week as China’s central bank allowed it to weaken more than recent normal levels.
Historically, large fluctuations in the yuan have been damaging to global financial markets because the yuan can be used to stimulate the Chinese economy, which of course needs stimulation.
It’s unclear whether the Chinese decided to use the yuan as an economic stimulus, although the yuan did depreciate more than usual shortly after China’s stock market crashed in the summer of 2015, and there was considerable volatility in the U.S. stock market in August 2015. .
The RMB/USD exchange rate closed last week at 7.2746 ($0.1375). The RMB exchange rate has not fallen as low as 7.38 ($0.1355) since December 2007, when the general trend of RMB appreciation under the policies of the People’s Bank of China began.
If the Chinese want to shake up the global economy for any purpose – one of which is, of course, helping their own economy slow down – all they need to do is let the yuan depreciate faster (every dollar rising means the yuan depreciates).
They have used the yuan to help the economy out of downturns before, and they may do so again, even as a last resort, as the yuan tends to disrupt global financial markets.
All opinions expressed above represent the opinions of Ivan Marchev of Navellier & Associates, Inc.
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Editor’s note: Summary highlights for this article were selected by Seeking Alpha editors.
