USD: Dollar correlations with other stalling asset groups
The trade-weighted dollar is up from its lows in early January by just over 2 percent. The declining negative correlation of the dollar with stock markets is noticeable and it is difficult to put a finger on what drives this. True, US yields have picked up marginally, but last week's increase in German Bund yields matched that of US Treasuries. And, of course, the US vaccine roll-out looks far more promising than in Europe, while year-to-date returns in the US S&P 500 are just slightly higher than those of the Eurostoxx 50. Here, heavy short dollar positioning is likely to play a major role and would again seem vulnerable if any portion of the employment data for non-farm payrolls were welcomed positively. After the 140k decline in December, Consensus is looking for around a 100k gain. Any upside surprise might see DXY extend its rally at 91.88 to the 100-day moving average, but we still prefer to see this as a rally for the bear market.
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