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Is U.S. Dollar on the Hot Seat?


With U.S. corporate earnings under a bit of stress because of the relentless strength of the U.S. Dollar since May, 2014 (+21%), the $64,000 question is whether or not recent weakness in the DXY represents a near-term peak, and if so, will a correction in DXY positively impact GOLD? And how will a DXY correction impact the SPX?

My sense is that a meaningful correction in DXY will unnerve foreign holders of U.S. equities, who "until now" have benefited from both (Central Bank-induced) rising U.S. equity prices and a strong currency.

Perhaps perceptions will shift a bit toward thinking that U.S. equity prices are operating in an environment of a less-friendly Fed coupled with a weakening U.S. Dollar? What then?

Bottom Line: Since last Nov, spot GOLD has held up extremely well despite a near-vertical U.S. Dollar advance. With the DXY vulnerable to a meaningful correction, GOLD should benefit, and SPX should suffer at the expense of Dollar weakness.

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