From the Desk of Ian Culley @IanCulley
What year is it?
Is it 2023 or 2022? Because it’s starting to feel like last year all over again…
No, Will Smith hasn’t slapped anyone (that I’m aware of). And I’m confident Bennifer 2.0 is going strong (solely based on Superbowl commercials).
But that’s not my concern. Here’s what does have my attention: the dollar and rates.
These were big themes last year – rising in tandem – and continue to be as we head into March.
It shouldn't come as a surprise as the next chart reveals the crux of the story…
Check out the overlay chart of the US dollar index $DXY and the US 10-year yield $TNX with a rolling 126-day correlation in the lower pane:
Notice the consistent positive correlation between the US benchmark rate and the dollar since fall 2021. It all began as Federal Reserve officials swept aside inflation, calling it “transitory.”
But by early spring 2022, the Fed aggressively hiked the terminal rate. That’s when the correlation between the dollar and rates intensified.
As we near the one-year anniversary of the inaugural hike, the rising rate environment and strong positive correlation between the dollar and US treasury yields remain intact. Nothing has changed.
Based on this information alone, it’s hard to have a bearish USD outlook.
Regardless of the intermarket landscape, it’s all about the chart in front of you. And what better chart to study the dollar index than the chart of DXY:
I’ve clarified in previous posts: The 105 level marks my line in the sand. Above there, and risks are to the upside.
Well, the DXY ripped through that level today, climbing over 1%.
The path of least resistance is now higher toward the Oct. pivot low at approximately 110.
Does this renewed dollar strength change our approach to risk assets?
It depends on the asset. For instance, precious metals are off-limits (gold dropped -1.9% today while silver fell over -4.5%). I’ve discussed this at length.
But when it comes to stocks in general, I still like finding names to buy vs. the other way around. I’m not interested in shorting stocks, not even names like Silvergate Capital $SI.
I’d rather spend time finding quality risk/reward profiles with clear levels to trade against. They’re out there, and we’ll continue to alert you to our favorite setups.
Meanwhile, the environment hasn’t changed much. And rising rates and a stronger dollar imply last year’s selling pressure will likely persist.
Stay tuned.
Thanks for reading.
As always, let us know what you think. We love hearing from you!
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