In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
The Impact of a Higher Dollar
We’ve talked a lot about the implications of a higher dollar. Long story short, it means lower prices for risk assets. This includes US stocks, commodities, and especially international stocks. They should all enjoy a tailwind if the dollar is to fail and roll over at these former highs.
Overlaying growth stocks such as the ARK Innovation ETF with the Dollar Index gives us a nice visual of this relationship. Look at the large base in DXY that has formed since its 2020 peak. If we were to invert that DXY chart it would fit seamlessly with the distribution pattern in ARKK, shown below. The two have a very strong negative correlation.
As the dollar has rallied since last year, ARKK and other stocks have come under increasing pressure. Along those same lines, if the dollar were to top out and start trending lower from here, wouldn’t this make for a logical level for ARKK to find a tradable low? We have a close eye on that shelf of support at the 2018 and 2020 lows. Buyers have stepped in and defended it for now.
