Saturday, March 7, 2015

"Dollar index hits 11-year high on strong jobs report"

There is an extraordinary feedback loop between oil prices and the dollar.
As the dollar strengthens, dollar-denominated oil declines, which is perceived as aiding the economy which strengthens the dollar. Rinse, repeat. Some links below.
From MarketWatch:
The ICE U.S. Dollar Index rose for the second- straight week Friday, after the Bureau of Labor Statistics’s February nonfarm payrolls number exceeded expectations and the euro dropped to its lowest level versus the U.S. unit in more than 11 years.

The ICE U.S. Dollar Index DXY, +1.43% a measure of the buck’s strength against a basket of six rival currencies, finished the day up 1.3% to 97.63, its highest level in ,more than 11 1/2 years.

The dollar’s exchange rate with the euro comprises more than half of the index’s value.
Friday’s gains pushed the index to its largest annualized gain since March 1985.

The euro EURUSD, -1.70% was at $1.0844 in recent trade after falling to its lowest level since 2003 at $1.0839 after the jobs report. It had traded at $1.1030 late Thursday.

Several analysts, including Matthew Weller, a senior technical analyst at Forex.com, said the number means that a June rate hike remains on the table, despite a slate of weak U.S. economic data and dovish statements from Fed governors, including Fed Chairwoman Janet Yellen.

The euro has plunged against the dollar this week, after remaining relatively stable in February, as the European Central Bank prepares, on March 9, to begin buying €60 billion of public and private debt a month as part of a €1.1 trillion stimulus program announced in January....MORE
If interested see also:
Mar. 4
Dollar and Oil Charts
Feb. 9
Astenbeck Capital's Andrew Hall: Oil Is Going To $65 And The Surviving Shale Plays Will Do Just Fine
I think he's early but right.
There are still 1100 oil rigs operating in the U.S. and they are now being directed to the lowest risk plays i.e. U.S. production won't start to decline until the third or possibly even the fourth quarter.

Probably more importantly the dollar is strong and any further appreciation could quickly knock 15-20% of the price of oil regardless of fundamentals....
Sept. 25, 2014
Chartology: "The Dollar Rally May Have a Long Way to Run"
Nov. 1, 2014
"Dollar's Next Leg Up"
Nov. 29
"Lower oil price could stoke US stock bubble"
Nov. 14, 2014
Quantifying The Stimulative Benefits of The Oil Price Decline (SPY; XLE)
Easily the most important story in global macro, the related strength of the dollar is a distant second.
The stimulus effects are the reason we have a prima facie (but only on its face) paradoxical call for a higher S&P 500 (SPY) while at the same time looking for dramatic underperformance from a major sector (XLE)...

Well, oil and the buck have now switched places as to which is the driver, but either way we continue to call for a bull in the larger market, an even stronger dollar and another leg down in oil and oil equities.
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