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Falling U.S. Dollar Saves The Day



September 19, 2011 – Comments (0) | RELATED TICKERS: UDN , SSO , SDS

It is pretty sad when the only way to get the stock market to trade higher is by selling off the U.S. Dollar Index (DX Z1). The U.S. Dollar Index measures the value of the U.S. Dollar versus six leading currencies such as the Euro 58.6%, Japanese Yen 12.6 %, Pound Sterling 11.9%, Canadian Dollar 9.1%, Swedish Krona 4.2%, and the Swiss Franc 3.6%. When the world's reserve currency declines the major stock indexes will inflate and trade higher. Politicians continue to say that they want a strong U.S. Dollar Index, however, the Federal Reserve continues to create cash reserves at an alarming rate. Just look at how the U.S. Dollar Index has traded over the past 10 years and you will see the amount of capital that has been created over the same period.

Today, the U.S. Dollar Index futures (DX Z1) are trading higher by 0.63 cents to $77.66 per contract. Traders can easily see how the the major stock indexes will trade higher when the U.S. Dollar Index declines and sells off. In other words, the stock markets are trading in an inverse lockstep relationship to the U.S. Dollar Index. This morning, the U.S. Dollar Index futures made a high around the $78.06 levels at 10:20 am EST. This was around the same time that the stock market indexes bottomed on the trading session. Every trader must keep an eye on the U.S. Dollar Index at this time.

Many investors have wondered what is so terrible about having a weak U.S. Dollar Index? The negative to a weak U.S. Dollar Index is higher food, and energy prices. A weak U.S. Dollar is also a direct tax on the American people, especially those that are on fixed incomes. Remember, when the U.S. Dollar declines goods that people need to survive become more expensive.  

Nicholas Santiago

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