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The U.S. Dollar Index Tells You All You Need To Know



June 23, 2011 – Comments (0)

The inverse relationship between the major stock market indexes and the U.S. Dollar Index are as close as they have ever been. Simply put, when the U.S. Dollar Index declines, the major stock market indexes will inflate and trade higher. The opposite is true when the U.S. Dollar Index rallies higher, the major stock indexes will deflate and trade lower.

This morning, we are hearing reports that the U.S. strategic oil reserves are being opened up to try and lower the price of oil. Obviously, lower oil prices will help the economy at some point. The problem is that the stock markets only go higher when oil goes higher. This stock market has been rallying on the back of inflation and the weak U.S. Dollar Index. In other words, the stock market has only rallied over the past two years because the Federal Reserve has diluted the U.S. Dollar. Let's see if the stock market can rally on the back of a stronger U.S. Dollar, the odds are not favorable.

Oil, gold, silver, copper, and every other leading asset class that has lead the major stock indexes higher for the past two years will continue to decline on the back of a stronger U.S. Dollar. It is happening this morning as the U.S. Dollar Index trades higher by 0.90 cents to $76.08 per contract. The last time the U.S. Dollar Index surged higher was during the summer of 2010 and the Federal Reserve scrambled to create QE-3. Eventually, the central bank will have to revert back to another quantitative easing program down the road.

Nicholas Santiago

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