Stronger Dollar Now Good for Market

For the last few years, every time the Dollar fell, the markets would move higher. Today, the U.S Dollar fell sharply and after a major gap higher, as the Dollar fell, the markets collapsed lower as well. Once the Dollar bounced, the markets bounces. What is going on? Can we make sense of this? The SPDR S&P 500 ETF (NYSE:SPY) is trading at $133.59, +0.58 (+0.44%).

It appears the Dollar may be at a pivot point where a drop is now negative to the markets. Let’s figure this out. With the PPI numbers this morning, it is clear inflation is hitting the producers of goods in this country at all levels. This is the step prior to it hitting the consumers at all levels. As of now, it is just cracking the average American in regards to food and energy. However, it is clearly going to be eating away at profits for companies. Margins should be much lower.

As inflation starts to soar, the likelihood of further quantitative easing is vanishing. There have even been calls  by some Federal Reserve officials to halt QE-2. While this is unlikely to happen, it is pretty clear with inflation already pumping in the system, QE-3 will not come to pass.

The more inflation in the system, the less stimulus can be pushed through. Think of the Federal Reserve’s stimulus and printing of money as a drug to the market, the addict. As the Dollar drops, prices rise, pushing inflationary pressures higher. This is now a major negative. The stronger the Dollar, the more likely stimulus can be needled into the markets veins.

Using this thinking, it is very likely that a stronger Dollar is now what Wall Street demands to keep the drugs flowing. A weaker Dollar will only raise inflationary pressures, cutting into profits and not allowing the Federal Reserve to print endless money.

About Gareth Soloway 168 Articles


Gareth Soloway has been an avid swing and day trader since his days at Binghamton University where he studied Economics. After college, Gareth quickly excelled as a financial advisor, helping clients get their financial houses in order. While helping others gain financial independence, he continued to study the day trading and swing trading world, developing a unique market philosophy and proprietary methods. Following his work in the financial sector, Gareth went on to trade alongside professional traders. Unable to tolerate the hype of Wall Street any longer and having an amazing ability to profit using his developed techniques, Gareth Soloway decided to partner with his friend and colleague, Nicholas Santiago to form Chief Market Strategist Gareth Soloway serves as the president and CFO of InTheMoneyStocks.Com.

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