The US Dollar
The US Dollar may be the most important asset in the world right now. It is currently attempting to breakout over the 2017 highs to a value it hasn’t reached in nearly two decades. Whether the US Dollar sustains this breakout or fails and begins to fall from here has massive implications for what is happening to other risk-assets.
Scenario 1: The US Dollar Breaks Out
If this is the case, we will most likely see continued pressure on other risk assets, most notably US equities. Investors seek the US Dollar when they are risk averse and seeking safety. The market will likely continue to be highly volatile in this scenario and asset allocation will need to be adjusted often.
Scenario 2: The US Dollar Fails to Break Out
In this environment, we will likely begin to see volatility fall as investors begin to move money back into the equity market. The breadth divergences we are beginning to see across certain beaten down sectors are likely to resolve higher and stocks as an asset class will start to find support where there was none for the last couple of months.
As of the 20th of May, the US Dollar closed the week slightly below the price point it broke out from. Is that the entire move or will it show continued strength in the coming weeks? Either way, it is important to remain nimble and monitor the scenario for the ripple effect it will have across markets.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal.
The economic forecasts set forth in this material may not develop as predicted.