Monday, January 11, 2021

Morning Note: Watch the Dollar

The dollar is continuing what I'll call its oversold/short-covering rally to start the week, and this time stocks are somewhat acting accordingly.

Recall, as we've been reporting, that a strong dollar (last week's late-week rally notwithstanding), like rising interest rates, simply doesn't work for stocks longer-term this far down the rabbit hole...

Asian stocks were mixed overnight, with 8 of the 16 markets we track closing lower.

Europe's messy this morning, with 16 of the 19 markets we track trading notably lower so far this morning.

U.S. major averages have come off of their opening lows a bit, but still in the red: Dow down 147 points (0.47%), SP500 down 0.56%, Nasdaq down 0.72%, Russell 2000 down 0.24%.

The VIX (SP500 implied volatility) is up 10.30%. VXN (Nasdaq i.v.) is up 1.50%.

Oil futures are down 0.92%, gold's down 0.02%, silver's down 0.77%, copper futures are down 2.72% and the ag complex is down 1.15%.

The 10-year treasury is down (yield up) and the dollar is up a big 0.58%.

Base metals and our foreign stock exposures are hurting more than healthcare and banks (only two positions in the green so far this morning) are helping our core mix (-0.62%) as we start the week...

I mentioned dollar short-covering in the first line above.

Here's a look at the latest net positioning of futures speculators who trade the dollar:

That's net short in an amount we seldom see. The panicky covering of those shorts when the dollar rallies (shorts get creamed when their trade goes against them) -- i.e, those traders buying the dollar -- exacerbates the immediate upside.

Hence why I keep repeating that the only thing that troubles me (short-term) about our dollar thesis is that everybody seems to agree with it. 

Have a nice day!

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