From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Correlations often work... until they don’t. It’s just the nature of intermarket relationships.
We can see a prime example in the recent action between the US dollar and risk assets.
The dollar has been marching to the beat of its own drum, as it's shown an unusually strong positive correlation with commodities since this summer.
Although the inverse correlation is not as strong with equities, it still exists. But the USD’s resilience during the second half of this year hasn’t stopped stocks from screaming higher.
While we definitely aren’t in an environment where USD weakness is a tailwind, the evidence continues to stack up in favor of the bulls and risk assets.
The dollar is just one data point. But it’s a rather important one, as the direction of King Dollar has proven to have a profound impact on other asset classes.
Today, we’re going to highlight the decoupling of USD relationships and what it could mean for the rally in risk assets.
Let’s dive in!