Forget The European Ménage à trois Here Is The Reason For The Rally
The major stock indexes have soared sharply higher this afternoon. The catalyst for the rally according to the media is the fact that Germany's Angela Merkel, France's Nicolas Sarkozy, and Greece's George Papandreou all agree that Greece should be part of the European Union. Greek bond yields are now favoring that Greece will eventually have to default, however, many investors are now speculating that Europe will introduce its own form of the bank bailout plan called TARP. While this news may be positive for Greece it is really not positive for the rest of the European Union. Spain, Italy, Portugal, Ireland, and even France may need to be bailed out. This TARP program will need to be very large if this is going to work for a while.
Today, the major stock indexes in the United States bottomed out around 10:20 am EST, this was the same exact time that the U.S. Dollar Index(DXY) topped out. Once the U.S. Dollar Index began to decline and sell off the stock markets started to soar higher. Nothing has changed over the past ten years, when the U.S. Dollar Index declines the stock markets inflate and trade higher. If you look at a chart of the U.S. Dollar Index you will see that the DXY is trading in an inverse lockstep relationship to the major stock indexes since the opening bell. Every trader should be watching the U.S. Dollar Index extremely closely at this time. Should the U.S. Dollar Index begin to rally or trade higher this stock market will likely decline very quickly. It is the U.S. Dollar that moves markets, not the news that is coming out of Europe.