Greg Schnell on the US Dollar

This past week, Greg Schnell gave us his thoughts on the US Dollar and what a rally in this asset could mean for equities.

As we can see in the first chart, the Dollar is very close to breaking out above the highs we saw in Q4 2018. Greg also mentions that a breakout in price could bring a breakout in the PPO (Percentage Price Oscillator), which has been in a 9-month downtrend. This would signal a "significant change in momentum".However, I believe one of the more interesting points that Greg makes is actually on a longer-term chart of the US Dollar, compared to the S&P 500. Greg has drawn a line at the 97.5 level on USD. He points out that equities have usually seen a lot of volatility when we are above this level. From 1998-2002, we experienced wild swings in price, aided by the Asian Financial Crisis and the "popping" of the Dot Com Bubble. Equity markets also had trouble from 2014-2016, another period where the Dollar hovered around this same area. Going back to the 1980, as the Federal Reserve was trying to control inflation, we saw drastic changes in multiple asset classes, not just equities. On top of this, US equity markets also struggled in 1989-1990, as we briefly breached 97.5.

As Greg points out, one day (or even one week) does not make a trend. However, if we were to breakout above this level and remain there, it could signal that significant volatility in equities, and possibly other assets, could be right around the corner.