Global Macro: Economic Strength Bodes Well for the Dollar
NEW YORK ( TheStreet) -- Ben Bernanke spoke last week in front of Congress and made the case that the Federal Reserve would remain flexible and continue to act in reaction to economic currents.
This leaves the dollar in a vulnerable position. He did not explicitly say which way the Fed was biased, which is currently reflected in the dollar's price action.
The chart below is of PowerShares DB US Dollar Index Bullish (UUP) over CurrencyShares Swiss Franc Trust (FXF). This pair measures the true strength of the U.S. dollar, as it is compared to the franc, a traditional safe haven currency.
The U.S. currency resides at levels around the midpoint for the year. It has found support over the past few weeks, but future movement will be heavily reliant on economic releases, as those are also the focus of the Fed.Although it looks as if a double top has formed in the price action, it would be premature to assume the dollar goes lower. We truly are at the mercy of the Fed regarding the future movements of the dollar. The next chart is of Guggenheim S&P 500 Equal Weight (RSP) over SPDR S&P 500 (SPY). This pair measures the market breadth of U.S. equity markets. The pair is quickly approaching its record highs and even in the face of mixed corporate earnings, investors continue to push stocks higher. The resistance levels continue to hold strong, and with the market's focus on both the future of Fed stimulus and the rest of corporate earnings, it will take positive news on both fronts to push markets convincingly to new highs. The last chart is of iShares Barclays TIPS Bond (TIP) over iShares Barclays 7-10 Year Treasury (IEF). This pair measures inflation expectations as derived through treasury markets. The pair had been in a strong downtrend for most of 2013. This can be attributed to the markets complete disregard for inflation as global growth and stimulus concerns were diminished. As growth starts picking up and economies look to be bottoming out, hope returns for increased growth in coming years. Renewed hope has pushed investors back into Treasury Inflation Protected Securities, and out of long dated bonds.
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