King Dollar’s Crown Wobbles

Brian Dykstra portraying King John

Photo by Teresa Wood, Brian Dykstra as King John, h/t broadwayworld.com

by Steven Sarnoff

As the stock market’s decline intensifies, one wonders what central bankers will do.  Will they coordinate to take down the US dollar?  Their objective would be to boost their balance sheets and pump out enough liquidity to prop up ailing share prices.

Will Treasury Secretary Munchkin Mnuchin again call the PTT (Plunge Protection Team)? Stocks are sliding hard.  It will likely take a sizeable sovereign effort to turn the state of the market.

The excellent chart below, by spiralcalendar.com’s Chris Carolan, depicts the relationship between growth in combined central bank balance sheets (US, Japan, Europe, and China) and the S&P 500 over a decade.

Chart of stock prices and central bank balance sheets

Chart by Chris Carolan, spiralcalendar.com

After an extraordinary period of QE (quantitative easing), the Fed’s desire to return to normalcy via QT (quantitative tightening) certainly isn’t carried out on the QT (quiet).

My daily candlestick chart of the US dollar index (see below) is pointing south.  Support from yesterday’s strong red candle gave way by today’s close.  Price is below the negative influence of shorter-term MA (moving average) lines.  They appear to be rolling over. This indicates the likelihood, but not the certainty of lower prices down the road.  The longer-term MA may act as a magnet.

Chart of the US dollar index

Chart by Steven Sarnoff, h/t stockcharts.com

Gold benefits from a falling dollar and today gold traded at a six-month high, acting like the Midas metal wants to go higher.  We shall see if King Dollar drops from here and if it helps forestall a noisy reckoning for asset prices.

Best regards,

Steve

Leave a Reply

Your email address will not be published. Required fields are marked *