The negative correlation between equities and the dollar remains intact, representing a fundamental piece of the current intermarket puzzle.
When the dollar strengthens, stocks tend to fall under selling pressure. On the flip side, stocks often enjoy strong bull runs when the dollar trends lower.
Many investors think it's not coming and that the market is going to crash instead.
In fact, CTAs have never been this short. The last few times they were anywhere near this bearish, stocks went on to have some of the greatest rallies in history. I remember them well:
The most important chart in the world is back in action!
A rising US dollar is generating increased selling pressure for risk assets and global currencies.
US Treasury bonds, stock indexes, and even commodities are catching lower.
Yet it’s nothing new for the top components of the US Dollar Index $DXY (the euro leads at 57.6%, followed by the yen at 13.6% and the pound at 11.9%).
New lows and broken support have become standard for these currencies.
But King Dollar’s command is spreading to the more resilient pockets of the forex market, as fresh breakouts mount.
Here’s the US dollar-Canadian dollar pair breaking above a key retracement level to six-month highs following a litany of missed attempts:
The US Dollar Index $DXY hit a new year-to-date high on Monday, punishing other global currencies.
The euro undercut its June pivot lows. The pound dropped for the fourth consecutive session. And the yen is well within reach of its lowest level since the summer of 1990.
Other major currencies don’t stand a chance against USD strength.
If you can’t beat them, join them!
The Swiss franc might be the next to succumb to this old proverb as it prepares to bend the knee.
Check out the US dollar-Swiss franc pair pulling back after posting a new eight-year low:
