Wednesday, January 2, 2013

It's All Relative

Although our elected officials are doing their best to drain the last remnants of goodwill towards the US dollar, the greenback continues to exhibit notable relative strength - both in momentum and price - and appears poised to make the next turn higher. 

And while a strengthening US dollar index continues to be a major development we are looking for in 2013, the downstream kinetics of such a move is more difficult to ascertain. For example, just looking at the weekly correlation between the SPX and the US dollar, you will notice the strengthening inverse correlation - since both the dollar and the SPX made coincident lows in August 2011. Considering we expect the next move to be higher in the dollar, we remain cautious towards the equity markets - despite the exuberance reflected in the indexes today.