The U.S. dollar and the U.S. stock market are forever joined at the hip in a kind-of three-legged race to the financial finish -- or so the conventional mainstream wisdom would have you believe.
This recent news item below emphasizes the point:
“History shows a strong and consistent correlation between weak currencies and falling stock markets. Weak currencies are a symptom of a deeper problem – slowing economic growth, out-of-control inflation, or structural issues – that reduce the attractiveness of equities.” (CNN Money)
I beg to differ. In fact, according to the “history” of the past four years, the relationship between the greenback and the leading blue-chip stock index has been anything BUT consistent. On this, the following archive of lasting trend changes within each market stands the test:
January 1, 2004 to December 31, 2004: The U.S. dollar plunges 36% against a basket of the world’s leading currencies to a then all-time low. Meanwhile, the Dow Jones Industrial Average undergoes a sideways-to-rising trend.
January 1, 2005 to December 31, 2005: The dollar enjoys a powerful, 15% rally to multi-year highs. Over the same period, the DJIA endures a steady crawl to end nearly unchanged for the year.
January 2006 to March 2008: The dollar resumes its downtrend, plummeting nearly 40% to a new, historic low. All the while, the DJIA rejoices a record-shattering winning streak to a brand new, all-time high on October 11, 2007.
(U.S. Dollar Dives To A One-Month Low. In the September 22 Specialty Service Currency Outlook, Elliott Wave International’s chief currency expert presents in-depth analysis of the Euro/$ on every time frame: daily, intra-day, weekly, and monthly. Learn More.)
Closer to home, the short-term picture is equally revealing. To wit: In the two-session triumph of September 18, 2008 to September 19, the Dow rocketed a jaw-dropping 779 points -- the biggest two-day gain in eight years. Yet -- at the end of the stock’s surge, the U.S. dollar slid to a one-month low.
Bottom line: The flawed notion that the U.S. dollar moves in sync with stocks leads to a dead-end with no escape. On the other side of the “street” -- Elliott Wave International presents its renowned Specialty Service World Currency Outlook.
Check it: One day before the most recent downtrend in the Dollar began, the September 10 SS publication presented the following Euro/Dollar price chart (some Elliott Wave Labels have been removed) and wrote:
“It’s possible to count five wave down. In both cases, the momentum divergences… suggest the environment is right for a turn. I would be on the lookout for a bottom.”