marctomarket.com / by Marc Chandler / April 20, 2017
The Federal Reserve’s real broad trade-weighted dollar fell for the first three months of 2017, and the greenback’s heavy tone this month has raised questions about the state of the bull market. Despite this recent weakness, we think the bull market is intact and that the advance will resume.
In the February through April last year, the real broad trade-weighted measure of the dollar fell. Many investors doubted the bull market was intact. The greenback proceeded to rally seven of the following eight months. In 2015, this measure of the dollar fell in three of the 12 months, and two were back-to-back (April and May). In 2014, there was a three-month losing streak (March-May). It then appreciated in six of the following seven months. Of course, history does not repeat itself.
The Great Graphic here depicts the real broad trade-weighted index(white line) and the euro (yellow line). The chart goes back to 1990. I am uncomfortable showing two time series on two scales on a single chart, as this practice seems abused on Wall Street. However, for given this, the two track each other pretty closely and for good fundamental reasons. Europe is a significant US trade partner and shares many of the same drivers of headline inflation, like energy.