Dollar & Dow Rally and QE Unwinding

Usually the conversation surrounding a Dow rally is dollar weakness but not today, the market’s fallen down the “QE” rabbit hole.

Here’a are some ideas to consider. It connects the dots to reveal a bullish outlook.

– Fed member Lacker has come out to say that rates could rise in mid-2013. Add to the solid ISM number and QE looks like it’s being taken off the table and put in the dusty corner of the closet.

- The Dow rallies on the strong ISM – but there’s still a rocky road ahead or at least one with plenty of potential twists and turns – as tomorrow’s ADP kicks off the countdown to Friday’s NFP.

- The U.S. Dollar Index has rallied off technical support and while there’s an argument that QE is taken off the table (I agree) I don’t see the long-term dollar strength if risk is coming back on the table.

- If QE is being put in the closet, and according to FOMC member Lacker, rates could be hiked as soon as mid next year…the implication is that the economy is stronger/recovering. Could the U.S. be the second the raise rates? (assuming that Carney and the BOC are the first) Traders are factoring in a 2/3 likelihood that the BOC will raise before Sept.5.

Technically, the Dow must close above 13,300 (and the YM futures contract must close above 13,200) This could shift opinion in such a way that continued momentum and an uptrend could form...but I am getting waaaay ahead of myself. There’s a little report called NFP that has to be considered before any such proclamation.

5-1-2012 1-04-16 PM.jpg
The daily Dow shows that the market has “escaped” the range of the April 17 rally and has now surged through 13,300.

Was too much expectation of QE baked in to the dollar cake? There’s certainly an argument for that as the dollar has yet to break down through the day congestion support and is trying to find some attention and momentum north of 79.00. I still see the least path of resistance is down for the greenback but let the price action prove it.

5-1-2012 1-08-51 PM.jpg
The greenback is finding support and an intraday rally alongside the Dow…today. I don’t expect it to last long though.

Hey traders, a little bonus for this week. I am doing a free webinar Wedneday at 5:00pm EST. Register because the room size is limited and even if you can’t make it live, when you register you’ll be notified when the recording becomes available for playback.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>