The Stock Market Bounce Needs A Weaker Dollar

Damir Tokic profile picture
Damir Tokic
4.27K Followers

Summary

  • The Euro and emerging markets stocks had the perfectly positive correlation in June (EEM down and FXE down).
  • The end of the liquidity shock will weaken the US Dollar and boost emerging market stocks.
  • Weaker USD needs some evidence of the Fed's dovish turn.

Emerging Markets

Ildo Frazao/iStock via Getty Images

The Liquidity Shock Phase Selloff is easing

History shows that over long term stock market trends higher, thus, long-only passive investment strategy, which includes dollar-cost averaging, makes sense. Yet, here and there, there are corrections, or up to 20% drawdowns, and every 7-8 years on

Monetary policy expectations

Global Academic View

EEM and FXE price and moving averages
Data by YCharts

EEM and FXE price
Data by YCharts

EEM components

MSCI

This article was written by

Damir Tokic profile picture
4.27K Followers
Global-macro research. Proprietary trader. Holding a valid Series 3 license as a Commodity Trading Adviser, member of National Futures Association. Professor of Finance. Editor-in-Chief Journal of Corporate Accounting and Finance.

Disclosure: I/we have a beneficial long position in the shares of SPX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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