Interesting observation in today’s (7/1) selloff: the dollar is getting hammered.
The downturn is no surprise, and I've had all accounts in almost exclusive cash/short positions. What IS surprising to me about today's action is the fall in the dollar. It has been a "safe haven" for months.
But when the bad news housing and jobs numbers were reported, the Euro rallied in a very big way vs the U.S. dollar. Is this a sign that the market’s pressure points are changing? Specifically, is the debt issue in Europe being bypassed by the lack of the growth in the U.S. (and China) as the market’s primary concern?
More importantly, it may indicate that the market is embracing the austerity that Europe is enacting, while now shunning the U.S. dollar in light of the fact that its growth won’t support the accommodative measures the Fed has been taking in the U.S. This becomes especially interesting in light of the suspicion that Bernake and the White House may very well be inclined to go on another QE/stimulus binge. If/when they do so in the fall, it may be the needle that finally pops the treasury bubble, as faith in U.S. currency (via growth) fades.
The equity (stimulis) vs debt (austerity) battle is moving towards a head. It will be interesting to see how this plays out in the currency markets.
Disclosure: long epv, skf, bnd