Wed, May 23, 2012, 1:04 AM EDT - U.S. Markets open in 8 hrs 26 mins

Dollar Strength Is Killing Stocks & Commodities

I've been talking about the relationship between the U.S. Dollar and the stock market, not to mention commodities, for months on Breakout. I mean a lot. Almost obsessively, really. The theme has been "Strong Dollar = Weak Stocks" and vice versa. It's been a point worth making, as evidenced by the price action again today with the dollar stronger against the Euro as stocks fall.

According to Clark Yingst, chief market analyst at Joseph Gunnar, the relationship between the dollar and the euro is the market tell of 2011, dominating the tape to the point that other fundamentals are being all but ignored. Yingst says the ratio is getting whipsawed by "the latest reports and rumors emanating from Europe and that's the indicator of the direction U.S. stocks are going that day".

Yingst says market reactions to earnings reports have been strictly company specific, with all other implications for the rest of the respective sectors. Pointing to IBM (IBM), Yingst says weakness in Big Blue's core businesses "should" have impacted competitors. When an industry leader like this sees weakness in core segments, the news typically puts a dent in related stocks. Instead companies such as Hewlett-Packard (HPQ) moved higher off IBM's results, carried along with the rest of the tape and, not at all coincidentally, a weak dollar.

According to Yingst dollar strength is likely to persist. In September there "appeared to be a real breakout, technically speaking, in the dollar/euro." Pointing to a break of the dollar's 2-year downtrend as well as the 200-day moving average, Yingst forecasts near to intermediate term strength.

"Given the inverse relationship between the dollar/euro and the S&P500, that's a negative for stocks," Yingst concludes.

Are you paying attention to the EUR/USD or is all this currency and technical stuff a bunch of noise? Let us know what you think in the comment section below.

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224 comments

  • Jim Aberrr  •  7 months ago
    What strength are they talking about???? When the Eurp first came out on the late 90's,
    it took 85 cents to buy a Euro. Now its around $1.38 to buy a Euro!!!!
    Do they believe Gasoline prices are too low????
    • Gary 7 months ago
      Yes, THEY do.
    • STEVE 7 months ago
      That's better than the $1.60 that the euro used to buy.
    • pwils 7 months ago
      its not the 90's anymore buddy
  • Anton H  •  7 months ago
    Strong Dollar = Weak Stocks

    yes, we know that for the past couple years! That's what QE1 and QE2 are for. Printing tons of monopoly money to buy back government bond and meanwhile to derail the dollar value. So forex investors will pour money into stock market to make wall st. shoot up like a dead dick on viagra.

    This is to benefit corporate pigs in hope to boost up hiring again after they are fatten up from the money they made. Obviously, it's a failure and the only things it brought to the 99% are high commodities price and inflation.
  • Zorba  •  7 months ago
    Strength? Failure to collapse, you mean? If only the dollar WERE strong enough to "kill" stocks and commodities! It would not hurt my feelings one bit if my dollars bought a hell of a lot more stocks or commodities.
  • westerner  •  7 months ago
    I fail to see how a weak dollar helps anybody but commodities speculators. We have a trade deficit in this country and a weak dollar, while helping exports in terms of sales, will always have a net negative effect because it makes imports and commodities/oil more expensive to Americans.. Unless you are Goldman Sachs and have all your dollars tied up into assets that benefit from a strong euro/weak dollar, there is nothing good about it.
    • Matt W 7 months ago
      If imports are more expensive, you will buy less. If exports are cheaper, people will choose US exports over other countries. It's really not that hard to understand..
    • westerner 7 months ago
      Actually in the case of gasoline and food, the US consumer gets squeezed - forced to pay more without the discretion to spend less. They still need the same number of gallons to get to work each week, and the same amount of food to feed their families each week, so their is really no rationale for a weak dollar, considering it's negative effect on commodities.
  • yahoo user  •  7 months ago
    What dollar strength? It takes $3 to buy what it used to take only $2 five years ago.
    • Alex 7 months ago
      But for $90,000, you can buy this formerly $200,000 home...
    • Alex 7 months ago
      But for $90,000, you can buy this formerly $200,000 home...
    • peterP 7 months ago
      good sarcasm...
  • A Yahoo! User  •  7 months ago
    Media types and Wall Streeters always seem to be upset when oil prices drop.
  • Sean  •  7 months ago
    Its an illusion at best... one piece of trash is worth slightly more than another... big deal... true dollar strength would mean that cost of living or inflation is declining... cost of gas, food, medicine, and education going down... any of you brilliant people see that happening anytime soon?
    • Dayme 7 months ago
      Nope... Because in the NEW era of economics lower production costs/higher inventories/lower demand don't translate into lower prices. They now equal HIGHER PROFIT MARGINS... Just ask Exxon Mobil
    • Ron O 7 months ago
      Gas, food, medical care, and education are things that are consumed by the working class. Thus, the hedge funds and cartels work together in the food, banking and energy sector to keep those costs high as they trade commodities back and forth with each other. The costs of medical care and education NEVER go down, no matter how terrible the economy. Meanwhile, anything a worker owns like, say, a home, is classed as "worthless" by the powers that be, even though the costs to build the same home would be three times the asking price. This guy then says we would be REALLY helped if we weaken the dollar and create inflation. Hey, let's just give those guys so more tax breaks so they can make some more jobs, right?
    • Roger 7 months ago
      The dollar was pretty strong during the Great Depression, you could by a lot with it. Depressed prices (and wages) was why it was called the Great Depressin. The big trouble was finding a dollar to spend. The cost of things going down does not mean a strong economy.
  • BETTER TOMORROW  •  7 months ago
    Your premise is all f'd up! Every action has an equal opposite re-action. If you were right then a stronger dollar would show prices in the U.S. would be DROPPING but the inflation ticks are upward and anyone who goes to the store knows that food is getting out of sight! Go back and read your economic and finance books.... quit writing this junk for others to read... we have enough trouble with ignorance in this coutnry already! All you are seeing is the relative strength of the dollar against the Euro going up with all the trouble in Europe.... other currencies are not changing and certainly not China where we buy most of our stuff and they are using our money to buy up our grains and foods. THINK!!!!
    • Paul 7 months ago
      Stronger $ vs Euro means imports are cheaper and exports are more expensive. Cheaper imports means less business for US corps. More expensive exports means less business for US corps. Thus stronger $ lower stock mkt. PLEASE get a clue before you spout off.
    • STEVE 7 months ago
      Or at least read the article.
    • Obi ONE 7 months ago
      These aren't finance professionals, these are commentators - imbecile potted plants incapable of understanding the effects of dollar movements on the broader economy because they are bought and paid for by subscribers to the pathological science of Supply-side economics. The free market just proved it is incapable of stopping fraud from becoming endemic to an industry, and also proved it's incapable of self-correction at a rapid enough rate to keep an industry from demolishing the broader economy. Suckers like Paul are still spouting the failed line.
  • LanceS  •  7 months ago
    In the long run it will be a collapsing dollar that will be our biggest problem.
  • JupiterX  •  7 months ago
    Great. We want Dollar North, commodities South.
  • MikeJ  •  7 months ago
    Laughable article, pointing out the obvious but implicitly advocating an absurd policy.

    Should we be hoping for Turkish-style inflation so we can get Turkish-sized stock market returns, which were very high in terms of the (inflating) Turkish lira? Too bad the real value of Turkish stocks fell as part of the bargain.
  • Sarah Palin  •  7 months ago
    You are absurd. The dollar is close to an all-time low against the yen and the euro has weakened due to its crisis, but the dollar is not strong aginst the euro - it's still $1.38 to buy a euro. It's been in that range since Bush II, the #$%$
  • NA  •  7 months ago
    Wall Street will start crying to Big Ben for help to sink the dollar 'again' in order to artificially inflate stocks.
  • Lord of the Air  •  7 months ago
    Stock market kiddies want to destroy the dollar so they can rob America at the gas pump.
  • Eric  •  7 months ago
    Everything today include stocks and commodities are under heavy manipulation. Any logical thinking these days are totally worthless. The manipulators just do the opposite. Watch the stock market and you will know what I mean. Asian and European market tanked last night. You think the stock market would open lower. Wrong. They gap it up 57 points in the morning. Then you think the market strong. Wrong again. They pushed it down -100 points. Then CNBC said investors should not hold stocks for the weekends. OHH so scary! The market rally back up to the high of the day. Now you are bullish again. So they pushed it back down to negative with 10 minutes to close. Wait until you sold everything then they swing it back up 37 points.
  • m m  •  7 months ago
    what a #$%$ cluless idiot talking about dollar strenght. is he dreaming?I can't believe such ignorant given opportunity to talk currency.
  • Jon  •  7 months ago
    Sooo, that means a stronger Dollar is good for main street -- Wall Street got their Obamabucks and inflated commodities.

    We are at the weird irony that if investment banks start collapsing consumers win.
  • RobertM  •  7 months ago
    First they say a weak dollar is bad and the dollar should not be the world's currency. Now it is too strong and that's bad. Why don't ya'll kiss my #$%$
  • critic  •  7 months ago
    Who ever that thought of this title and this article should be shot for treason. MF, since when a strong dollar is bad? What is it, you lost money on oil and you wrote this s#ity article? MF, people are losing their jobs, homes, respect, dignity and you are talking about strong dollar? Since when expensive oil has been good for this country? Since when expensive gasoline has helped the economy? And now you are complaining about strong dollar is killing the market?
  • From the Northwest  •  7 months ago
    Strong Dollar? This has to be a joke! I don't know what data those guys are looking at. Another piece of poorly informed article or comments with just the purchase on the part of the media and "analysts" to manipulate the market and serve or save their own speculative position.

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