“Davidson” submits:
The US$ holds near its highs, but the EFA (LgCap Intl Equities) shows that capital is flowing to Intl Equities as it rises to 62.6. The MSCI All Capital World Ex-US Index (ACWX) which includes EmgMarkets is rising in tandem. One cannot predict which of the various indicators will shift prior to the others as each is dependent on investor perception. It appears that equity investors are leading the way this time.
If enough capital shifts back to Intl Equities, the US$ should fall back over time to its long-term trend which is 30%-35% lower than current levels. Oil, which has been tied algorithmically inversely to the US$ and directly correlated to economic activity since 2003by Momentum Investors, has risen ~100% from the 1Q16 lows. Market psychology is clearly recognizing that the expanding economy has not suffered the major recession forecasted by low oil prices. The continued rise in equity markets globally will eventually force pessimists to reverse their perceptions. I expect to see lower US$ and higher oil prices going forward as Momentum Investors capitulate.
It is impossible to judge at what specific break-point Momentum Investor market psychology may transition. The chart shows a DASHED GRAY LINE at 62 for the EFA for perspective, not as a prediction. It is a means of calling attention to a positive change vs. previous the trend. It was US$ strength on the Russian invasion of Ukraine in 2014 which impacted the EFA and oil prices. This was market psychology. Market psychology always cycles. It was global market psychology panic which drove rates to 5,000yr lows, drove the US$ strength and drove oil prices to $26BBL from $100+BBL. We are seeing the early stages of reversal today.
Investors are recommended to have Intl Equity exposure especially LgCap Intl.
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