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Global Macro: U.S. Dollar, Interest Rates Face Resistance Ahead of Data

NEW YORK ( TheStreet) -- U.S. equities may move higher this week as interest rates and the dollar run into resistance.

Investors bid U.S. equities higher the second half of October on the hope that monetary stimulus would make up for the shortfall of a weaker economy, but the Federal Reserve's statements last Wednesday led market participants to believe the Fed may be more hawkish than expected. That led to a widespread selling of Treasuries, which meant higher interest rates and a stronger dollar.

The chart below is of SPDR S&P 500 (SPY). Equity indexes channeled lower throughout last week, as there was not enough positive sentiment to keep stocks at record highs.
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U.S. corporate earnings have been mixed. Three quarters of S&P 500 companies have reported results for their latest quarters. Earnings have exceeded expectations while revenue has fallen short. That indicates that consumer demand is still weak but that companies have become more efficient in a difficult environment.

With weak revenue, companies may not be able to stand on their own two feet just yet, making low interest rates still necessary for positive consumer sentiment.

Expect equities to withhold from major moves in either direction until labor and gross-domestic-product data are released later in the week.
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The next chart is of PowerShares DB US Dollar Index Bullish (UUP). The U.S. dollar has been helped by higher interest rates. The perceived hawkish comments from the Fed last week weighed on Treasury bonds which strengthened the dollar.

Meanwhile, a lower-than-expected consumer price index readings out of the eurozone signaled that the European Central Bank may take action to stimulate growth and inflation. That led to a selloff in the euro, adding strength to the U.S. dollar. The dollar looks to be trading at multi-month resistance levels, making further advances more difficult.
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Treasury bonds were heavily sold last week, and interest rates, which shot up last week, look to be a point of resistance. With bonds and the dollar overextended in their moves, a small correction may occur as investors await labor and GDP data later in the week.

A weaker dollar may allow for further strength in equities, but expect equities to roll over to the downside later in the year.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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