Rhody Trader

I love it when the relationships in the markets change. Partly it’s my twisted sense of humor leading me to laugh at those who got locked into the old ones. Mostly, it’s becaues they provide us with new information.

Today we’re seeing a change. Any time before now a better than expected jobs report would have crushed the dollar as stocks rallied and bonds were sold off – the classic risk acceptance trade (so to speak). Today, though, the greenback is shooting higher against the Euro and Yen especially (the Pound is holding up better, no doubt thanks in part to the beating it took yesterday)

The above Dollar Index chart shows how at first we got the expected downside reaction as per the old pattern, then we got the shift to the new pattern. I’m sure there were quite a few trader caught out by that turn around. This sort of thing, by the way, is why I don’t new trade.

So if the dollar is going to rise on positive news, what’s the implication. Well, it suggests the Fed won’t be eager to further pump up liquidity because of the improving conditions. Some folks are even looking for a rate hike by year-end. I’m not personally in that boat right now – but then my rate move calls have never been that great, so don’t put much stock it it. I certainly don’t.

On top of that, the markets have long viewed the US as likely being the first of the major global economies to come out of the recession. Improving data helps support that view. This is a positive for the dollar as long as the other economies are seen to be lagging, and Europe in particular seems to have a long way to go by their own comments.

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