By Nicholas Santiago on June 22nd, 2010 9:56am Eastern Time
What can we say, when the dollar is flat the stock market indexes are flat. That is how it works as the dollar is the driving force behind every move in the major indexes. Yesterday the stock market reversed a sharp morning rally only to close negative across the board as the U.S. Dollar Index rallied throughout the day. As we all know by now when the dollar rallies it will deflate the stock market indexes. The opposite case can be made when the dollar declines the major market indexes will inflate and trade higher.
This morning the Currencyshares Euro Trust (NYSE:FXE) which tracks the Euro is trading lower by 0.17 to $122.62. Remember the Euro will trade inverse to the dollar, therefore, when the Euro trades higher the major indexes will usually trade higher as well.
Spot gold is trading unchanged this morning at $1241.00 an ounce. The popular SPDR Gold Shares (NYSE:GLD) are trading higher this morning by 0.88 to $121.27. Gold is a double edge sword as investors will buy it in times of fear as well as when the markets inflate. Only a strong deflationary picture will bring gold lower.
Spot crude is trading lower by 0.15 to $78.40. When the dollar is trading flat often oil will trade near the flat or unchanged area. The United States Oil Fund (NYSE:USO) is trading higher by 0.13 to $35.47.
Should the U.S. Dollar Index begin to decline the stock market indexes will inflate. All commodities should inflate as well and will generally lead the markets higher. However, should the dollar catch a bid higher the markets will decline. This inverse dollar and stock market relationship is very strong at this time and should be respected.
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