This morning, the important U.S. Dollar Index futures (DX Z1) are declining sharply lower by 0.88 cents to $78.18 per contract. When the U.S. Dollar Index declines the major stock market indexes will inflate and trade higher. Yesterday afternoon the U.S. Dollar Index dropped as there was news reported that the European Union will implement a massive bailout plan. Whether or not this news is true when the DXY declines the stock markets will inflate. Should by chance the U.S. Dollar Index begin to inflate or trade higher the major stock indexes could pullback or sell off from the morning highs.
As you may already know, most commodity and energy stocks will usually be the first to trade higher when the DXY declines. Stocks and ETF’s such as Cliffs Natural Resources Inc (NYSE:CLF), United States Oil Fund (NYSE:USO), United States Gasoline Fund (NYSE:UGA), and the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE:JJC) are all trading higher ahead of the opening bell. It is important to understand that most energy and commodity stocks where extremely oversold, therefore, it is not surprising to see a bounce in the commodity complex. Traders must be aware, if the U.S. Dollar Index rallies or catches a bid higher the commodity and energy stocks could begin to pullback and sell off.