The US Dollar, early 2010

The U.S. Dollar seems to have completed its advance off the lows seen in early December of last year as measured by the dollar index we follow here at Atlas. Our currency strengthened by roughly 6.5% in just two month, topped out early in February, and has been trading sideways in a narrow range ever since.   The positive correlation we noted in our prior report on this indicator between the dollar, commodities, and U.S. stocks has seen the latter break away from the pack while both the currency and commodities have stopped advancing for the moment.  In fact, commodities in general have been rather lackluster.  One conclusion we might draw from this centers around the world’s other major currencies.  Specifically, the Euro seems to be on a slippery slope as some member nations are having their creditworthiness seriously questioned.  China is talking about currency controls as inflation there becomes more of a concern.  Oddly, the Japanese Yen seems to represent some stability in this environment despite their abysmal overall economic plight.  One persuasive argument that places a shadow on our currency is the recent trend for major foreign trading partners to seemingly shun owning it.  For instance, China has reduced their holdings of Treasuries three months running.  The problems outside our borders will not likely go away anytime soon, so it remains to be seen if the advance we saw early this year represents just the first leg of a longer uptrend.  We’ll keep an eye on things and let you know what we see.