October 22, 2013 3083 VIEWS

Tuesday, October 22, 2013 14:31 PM / Money and Markets


Global trade has an enormous influence on the financial markets and worldwide economy.


So when the currency that serves as the guidepost for valuing assets drops 1 percent, all investors are affected. That's exactly what happened to the U.S. dollar last Thursday.


The PowerShares DB US Dollar Index Bullish Fund (UUP), which compares the greenback against a basket of major currencies, posted the fourth-biggest decline in a year after the announcement of the debt deal in Washington. International investors soured on America's ability to pay its bills.


UUP also was turned back at a logical point of resistance (please see below the red line in the chart), which provided further support for investors hoping for a weak dollar.


Click for larger version


The Federal Reserve watches the impact of the dollar's value on emerging economies. An economic warning from China not only increased the odds of additional Chinese stimulus, but it also raised the odds that the central bank will push off tapering its massive $85-billion-a-month bond-buying program.



Stock investors seem to think so. From Reuters:

China's exporters face a difficult time in coming months as demand from emerging markets slows, the Chinese trade ministry warned on Thursday after the latest trade data showed sales to Southeast Asia slowed sharply in September. But China is ready to take measures to support its exporters to ensure the trade sector grows 8 percent this year as targeted, Commerce Ministry Spokesman Shen Danyang said, allowing exporters to see "mild growth" in the next few months.


The Fed desperately wants to back away from its non-traditional forms of monetary stimulus (i.e., quantitative easing). The news from China won't help, nor will the recent U.S. government shutdown. From Bloomberg:

The government shutdown and debt-ceiling debate prompted Fitch Ratings on Oct. 15 to put the U.S. on watch for a possible credit downgrade. S&P said the impact of the impasse was worsening by the day and had shaved at least 0.6 percent off fourth-quarter growth, taking $24 billion out of the economy. The ratings agency forecast 2 percent annualized growth in the fourth quarter, down from the 3 percent seen last month.


Knowing this, what should U.S. investors do? A weak dollar supports increasing demand for assets that get a tailwind from a lower greenback, including emerging markets (the exchange traded fund whose ticker is EEM), foreign currencies (the euro), commodities and foreign stocks.


So there's the playbook until something changes.


Disclaimer/Advice to Readers:
While the website is checked for accuracy, we are not liable for any incorrect information included. The details of this publication should not be construed as an investment advice by the author/analyst or the publishers/Proshare. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All opinions on this page/site constitute the authors best estimate judgment as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions. This article is published with the consent of the author(s) for circulation to the online investment community in accordance with the terms of usage. Further enquiries should be directed to the author Money and Markets www.moneyandmarkets.com, an investment newsletter published by Weiss Research, Inc. This publication does not provide individual, customized investment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed.

Related Articles
October 21, 2013 3470 VIEWS
October 14, 2013 1828 VIEWS
October 14, 2013 2626 VIEWS