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Weekly eLetter 3/22/2019 – The US Dollar Again

Markets generally continued higher this week, and continue to cogitate on the recent FED comments.  Nasdaq and S&P Indices* look pretty healthy. With the current FED statements, the FED ended a three-year drive to give us a tighter monetary policy as they projected no rate hikes for 2019 and possibly one in 2020.  The FED also reduced inflation forecasts for the next three years and suggested that it would halt the decline of the balance sheet in September.

Another related issue – the charts of the US Dollar strength may be taking a step back. Note in the following chart that we’ve seen steady growth in the USD strength over the past year – up until recently. You can see that the dollar has tested overhead resistance (shown by the solid red line) and fallen back several times; the most recent test being the beginning of March.  Note also the solid blue line showing the support level. This picture is known as a rising wedge – and it often resolves in the longer-term direction.

Over the past two years we’ve seen a stronger dollar and along with it a stronger US market.  Now, a pattern is a suggestion, never a guarantee, and that lets us speculate on the possible future actions. A continued upward movement of the dollar would suggest that US stocks will continue to be the sweet spot for investors, whereas a solid break below the blue line would suggest that the US dollar may be reversing and losing strength.

What other areas of the investment world does this chart cause us to examine more closely?  Customarily when we see a weaker dollar, NON-US equities tend to out-perform US equities.  Gold, Utilities and Energy also typically fare well in a falling dollar environment.  Of late we’ve seen quite a bit of strength in these areas.  Utilities also are showing a very strong chart lately.

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