The market is held hostage of the dollar



Of late, there has been a huge divergence correlation between the equity market and the currency market. The recent dollar strength continues to dominate the attentions, with stocks going up when the dollar eases and vice versa. It’s now clear that the Fed will not raise rates anytime soon and most likely the first rate hike in many years will only come at the end of the year or during 2016. Last Wednesday’s statement and following comments from Fed Chair Janet Yellen set a dovish tone which pleased almost everyone. Yet, market participants this week will try to search for hints among the data on signs that might bring some light when the Fed will hit the button. Meanwhile, earnings projections for the first quarter have been revised down by many analysts. Companies have also pre-announced weaker numbers for the current quarter and full-year. We are now in a no-man’s-land until earnings season, which will start on April 8 when Alcoa reports its results. It is my conviction that during this hiatus volatility will continue. Last Friday we had a big positive day for the market with big gains across the board on very high volume (it was a quadruple witching day). Let’s see if this rally has more legs to go and if the market can hold its gains. As I previously noted the next big thing everyone is waiting is earnings season. When companies start to report their results we will have a more detailed picture of the strength of the market. Don’t forget also that the quarter is ending and many of the recent high flying stocks tend to do well in this period.
Above is the chart of the dollar index (DXY) vs. the S&P 500’s ETF (SPY).

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