It is all too easy these days to get caught up with the short term emotion of the market, perhaps this is still the hangover of the big crash of 2008. We always take time out at the start of each week to ask ourselves the all important question; has there been any fundamental change in long term trends within each asset class?
In essence we see little reason to doubt the health of the trends in equities, commodities, treasuries, and real estate that had their origins in October/November 2008. Any pull back in equities, commodities and real estate has, so far at least, been met with a deluge of bearish opinion/sentiment which has effectively limited any downside. The opposite applies to US Treasuries.
Now what about currencies? After all the USD Index has risen dramatically over the last 4 months! We would like punters to look beneath the scenes. Yes on the face of it the USD (as per the USD Index) does look strong but if you strip out the effect of the Euro things looks somewhat different. Take a look at the behaviour of the CAD, AUD, and emerging market currencies (using the ETF CEW as a proxy). Have these currencies broken down against the USD? Granted they are not exactly making new highs and have not done so for a few months now but all the same these currencies are not exactly trading at multi-week lows which would typically suggest a change in long term trend. We think the rise in the USD Index is a false move and we all know what is likely to happen to equities, commodities and US Treasuries when (as opposed to “if”) the USD Index falls!
