RISING EUROPEAN CURRENCIES ARE PUSHING THE DOLLAR LOWER -- THE FALLING DOLLAR, HOWEVER, IS BOOSTING COMMODITIES -- BLOOMBERG COMMODITY INDEX IS BOUNCING OFF CHART SUPPORT -- FRIDAY'S REBOUND REPAIRS SOME DAMAGE
RISING EUROPEAN CURRENCIES ARE PUSHING THE DOLLAR LOWER... While stocks are rebounding today, the dollar isn't. Chart 1 shows the Power Shares Dollar Index ETF (UUP) falling again today to the lowest level since November. It may seem surprising to see the dollar continuing to drop with bond yields bouncing today along with stocks. The dollar drop, however, may have more to do with improving European currencies. Chart 2 shows the Euro surging to the highest level since last October. Improving economic conditions in the eurozone (as reflected in strong stock prices), as well as an uptick in inflation, are supporting that currency. The Euro has the biggest weight in the Dollar Index (57%). As a result, its rise is the biggest reason the UUP is falling. Chart 3 shows the British Pound climbing to an eight month high as well. That's a sign of more optimism in the UK economy. All of which suggests that the drop in the dollar may have less to do with deteriorating conditions in the US, and more to do with an improving situation in Europe. That also explains why global funds have been rotating into Europe. American investors are getting dual benefits from rising European stocks as well as currencies. That's giving a added boost to European stock ETFs that are quoted in weaker dollars. The falling dollar, however, is finally giving a lift to commodities.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
(click to view a live version of this chart)
Chart 3
BLOOMBERG COMMODITY INDEX BOUNCES OFF SUPPORT... A falling dollar is usually supportive to commodity prices. And that has been the case this week. Chart 4 shows the Bloomberg Commodity Index bouncing off important chart support formed last November. That's keeping the commodity index within a sideways trading range that started last June. The BCOM is trading above its blue 50-day average for the first time in two months. In addition, its 14-day RSI line (top of chart) is rebounding for the second time off its oversold line at 30. That's also an encouraging sign. Gold has been rallying all week. Copper and energy prices are ending the week on a strong note. That's lifting energy and mining shares which are helping lead the stock market higher today.
(click to view a live version of this chart)
Chart 4
BASE METALS AND ENERGY LEAD COMMODITIES HIGHER... It's encouraging to see economically-sensitive commodities like energy and base metals leading the commodity rebound. Chart 5 shows the PowerShares Energy Fund (DBE) climbing above its 50-day average. The DBE includes crude oil, gasoline, heating oil, and natural gas. It recently bounced off chart support along its November low. Chart 6 shows the PowerShares Base Metals ETF (DBB) jumping sharply as well. The DBB includes aluminum, copper, and zinc prices. It remains above its red 200-day average. Energy stocks are one of the day's strongest sectors. Aluminum and copper shares are boosting the materials sector. Those groups had been weighing on the market until this week.
(click to view a live version of this chart)
Chart 5
(click to view a live version of this chart)
Chart 6
S&P 500 REGAINS 50-DAY AVERAGE, BUT ON LIGHTER VOLUME ... Chart 7 shows the S&P 500 SPDR (SPY) trying to end the week back above its 50-day average. The candlevolume bars, however, still show some cause for concern. Candlevolume bars are adjusted for volume. The heavier the day's volume, the wider the box. And it shows how ominous Wednesday's price drop really looked when adjusted for volume (and makes Friday's rebound look less impressive). Wednesday's overhead price gap may also produce some overhead resistance. A couple of key market groups may hold the key to market direction. Chart 8 shows the Financial SPDR (XLF) rebounding modestly off potential chart support along its 2017 lows. Chart 9 shows the Russell 2000 Small Cap iShares (IWM) trading modestly higher as well. Both remain below their 50-day averages, however, and are attracting light Friday trading. Those two groups may help determine if the market is able to shrug off Wednesday's heavy selling and regain its composure.
(click to view a live version of this chart)
Chart 7
(click to view a live version of this chart)
Chart 8
