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Richard A. Cox
Richard A. Cox
Articles (62)  | Author's Website |

Markets Trends: Consumers Insure Higher Dollar Bloc in Currencies

Currency trends could influence stock markets this year

In all of the stock market volatility that has characterized 2018, there have been trends in other sections of the market which could provide important clues to investor sentiment levels as we head into the second half of this year. The U.S. dollar has been a central feature in the potential trade war discussions that could take place over the next several months.

This is critical in assessing the potential trend activity in commodities instruments like the United States Oil Fund (USO), the SPDR Gold Trust exchange-traded fund (GLD) and the iShares Silver Trust ETF (SLV). Consumers will need new ways to insure their assets and protect themselves from unexpected surprises. But it is also important for determining the most likely trajectory in the stock market exchange-traded funds like SPDR S&P 500 ETF (SPY), the SPDR Dow Jones Industrial Average ETF (DIA) and the PowerShares NASDAQ Trust (NASDAQ:QQQ). Active consumers have used my insurance guide to protect against potential shocks in our investments or other aspects of daily life. There are many different instances where insurance can play an important part in the daily lives of consumers, and this is a strong asset during times of heightened unpredictability.

The main reason for this is the fact consumer spending trends could be impacted by the level of the U.S. currency. Foreign goods become cheaper whenever the national currency is trading at elevated levels, which has been the case in the U.S. for some time now. If conservative investors plan to hold onto assets in the equities markets after the major instances of “flash crash” activity that was seen beginning in February. Ultimately, this puts stock market rallies at risk and suggests traders will need some protective insurance if these trends deepen.

Currency ETFs

Market activity in the U.S. dollar can be traded as a stock using the PowerShares DB US Dollar Index Bullish (UUP). The currency ETF has posted strong losses against both the New Zealand and Australian dollar, which is significant because these are the other two developed market economies that are in the process of raising interest rates as a means to stop building inflationary pressure at the consumer level.

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The central question here is whether or not the market is now in the process of ensuring a higher dollar bloc as this will have significant impact on the next round of earnings released by companies in the Dow, Nasdaq and S&P 500.

At this stage, UUP is showing signs of life while CFTC data suggests the market bias is bearish toward these assets. If this is correct, a strong reversal could be imminent for assets that are denominated in U.S. dollars. It could also turn out to be a benefit for companies with large numbers of consumers overseas, given the strength of the recent trends in corporate repatriation of global funds. Building trends in these areas could allow these practices to continue and, ultimately, support the outlook for further rallies in the SPY ETF over the next three to six months.

Disclosure:The author has no position in any asset mentioned.

(This article was originally published on MarketBulls.net.)

About the author:

Richard A. Cox
Richard Cox is a university teacher in international trade and finance. He writes for CNBC, NASDAQ, TheStreet.com and the Motley Fool.

Visit Richard A. Cox's Website


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