Nearly everyday, the U.S. Dollar Index (DX-M2) will decline after the opening bell rings at the New York Stock Exchange. Today is a perfect example of how the U.S. Dollar Index will sell off when the major stock indexes are close to a break down. Earlier today, the European markets were coming under some heavy selling pressure. The selling was also picking up in the U.S. markets, however, once the dollar declined the major stock indexes in the U.S. rallied back. Tomorrow, Spain is going to hold an important bond auction. Many investors are waiting to see what the yields are going to be on Spanish debt after the auction is complete. What investors do not realize is that the central banks are buying the bonds in order to keep the yields from rising. This has been openly stated by the European Central Bank (ECB) on numerous occasions.
The Currency Shares Euro Trust (NYSE:FXE) which usually trades inverse to the U.S. Dollar Index has a major head and shoulders top formation in place. If this pattern were to trigger and play out all hell would break loose in Europe as the Euro would drop sharply lower, however, the central bankers know that. Therefore, as long as the U.S. Dollar can decline it will keep that pattern from triggering.
Traders and investors are no longer trading stocks, earnings, or anything else, they are trading central banks and the action in the U.S. Dollar. Very often you will hear about the news in Europe or Asia, however, it is the action in the U.S. Dollar that drives every important stock market move around the world. Some traders and investors are probably tired of hearing this rant, however, it is the truth behind every stock market move. Traders and investors can watch how equities such as ConocoPhillips (NYSE:COP), Bank of America Corp (NYSE:BAC), and Hewlett Packard Co (NYSE:HPQ) will trade inverse to the dollar. These are three stocks in three different sectors. Simply put, almost every market trades inverse to the U.S. Dollar Index.