By Scott Rubin
The U.S. Dollar has been touching some pretty significant lows in recent weeks, and many traders have been looking for a bounce in the greenback for months. Any tick higher, however, has been short lived and the Dollar has continued to make lower lows.
In the last couple of days, the PowerShares DB US Dollar Index Bullish ETF (NYSE: UUP), which tracks the performance of the greenback versus a basket of foreign currencies, has hit a new all-time low, while the Dollar Index is sitting at 76.5.
The question at this point is if these levels are setting up for a bounce in the Dollar, or if the selling is going to pick up steam. This question has all sorts of implications for stock and commodity markets. In general, we would expect for stocks and commodities, along with inflation expectations, to continue to move up if the green back moves even lower.
A rising Dollar, on the other hand, could mean trouble for risk assets. One of the key indicators to watch in determining the direction for the U.S. currency is the Euro, which is also sitting at a key level, just below $1.40 at $1.3912.
The Euro has a number of different crosswinds that are driving the currencies' valuation right now. On the one hand, the ECB is giving hawkish commentary on rates, which is lending a strong bid to the European currency. On the other hand, spreads on Greek and Portuguese debt are blowing out again, signaling continued market concern over the state of European sovereigns.
Greek 10-Year yields surged to 12.764% today, and the Portuguese 10-Year has surged to 7.58%. Market observers will recall what happened to the Euro last Spring when the European sovereign debt crisis got into full gear. A similar flaring, would likely be an upside catalyst for the Dollar in the near-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.