The dollar is near its highest levels in close to a year, and that might be a surprisingly good sign for U.S. stocks.
The U.S. Dollar Index – which measures the buck against a basket of other currencies – is near its highest levels since September 2013. The minutes from the last Federal Reserve meeting, in which the central bank debated raising rates sooner than expected, helped the dollar on Wednesday. Higher interest rates make owning the U.S. dollar more attractive compared withother currencies.
David Seaburg, head of equity sales trading at Cowen and Company, believes the dollar will continue to rise against other major currencies, especially the euro.
“We’ll continue to see it strong,” said Seaburg of the dollar. “The U.S. is essentially ending QE [quantitative easing] and the ECB [or European Central Bank] is just beginning QE, so rates are going to go higher.”
While that may make it difficult for U.S. firms to export to other countries, Seaburg doesn’t think the stock market is focused on that right now.
“I don’t necessarily see near term as being the most important thing on investors’ mind,” he said. “There are many more things to worry about. Longer term, I see the dollar trending higher [but] I don’t think it’s going to affect stocks near-term.”
Steven Pytlar, chief equity strategist at Prime Executions, also expects the U.S. dollar index to head higher based on its technicals.
“The dollar looks quite bullish,” Pytlar said. He notes the dollar index traded in a range roughly between 79 and 81.30 from October 2013 until late July 2014. “Now we see it this year breaking out through that 81.3 level,” he said.
Projecting above the breakout by the length of the previous range, Pytlar sees the dollar index targeting around 83.40.
And if the dollar is appreciating, “that means capital is coming into the U.S.,” Pytlar said. “It’s generally positive for equities when that happens.”
To see the full discussion on what’s next for the U.S. dollar, with Seaburg on the fundamentals and Pytlar on the technicals, watch the above video.