Karpel’s Corner: Strong Dollar Hurts Commodities and Helps US Stocks

Welcome to Karpel’s Corner. This is where I throw out my thoughts on the markets and share some of my favorite strategies. I keep it market-focused, and never miss an opportunity to teach trading strategies and commentate on the latest trends affecting the financial markets. Hope you enjoy today’s post!

We have discussed over the past few weeks the impact of the strong Buck ($UUP) on the Metals market ($XME/$GLD) but it is not all negative.

The strong Dollar is a positive for the US stock market. Let me explain why: The Dollar and Commodities ($CRB) are negatively correlated, which means that when one goes up the other goes down. The Buck has been breaking out of a two-year base and Commodities have been pulling back from 2014 highs. When you have lower commodity prices this calms the inflation fears. In turn, the Bulls’ beloved Fed will not have to tighten faster which will slow bond yields. So, “plop, plop, fizz, fizz,” US Stocks then continue to bubble up.

This also will put pressure on the Emerging Market Stocks ($EEM), which could catalyze further momentum since then foreign capital would flow into the stronger US market. The short end of the yield curve could be picking up, with two-year yields flying. This is good for the Buck, but how will that help stocks? We will keep an eye on that scenario. 

See you next time at the Corner!