From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
We’ve recently pointed out the possible double tops in the Dollar index and the USD/CAD, along with our overall outlook for further weakness from king dollar.
But can we find other areas of the market that could provide further insight into the US Dollar’s direction?
After all, many market participants are fixated on the direction of the US Dollar right now as it approaches its key mutlti-year lows.
Why does the Dollar matter so much to investors?
Firs of all, USD and risk assets have had a very strong negative correlation over the last several years. The USD Index bottomed in early 2018 as stock markets around the world peaked. Conversely, the dollar topped during the Covid sell-off when stocks bottomed out at their March 2020 lows.
To gain a clearer picture of the USD, we need to go beyond the Dollar Index and developed currencies.
Let’s look at a couple of charts of emerging currencies as they provide valuable information on broad USD performance, as well as risk-appetite around the world.