The dollar strikes again: Dollar up today; gold and stocks down

11/19/2009 3:25 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

You’re probably tired of reading this. I’m certainly tired of writing this.

It’s all about the U.S. dollar. The moves of the dollar trump everything else when it comes to deciding whether stocks will go up or down on any particular day.

So ignore the headlines explaining today's move as a reaction to good or bad news. It's not. Stocks today are reacting to a trading bounce in the U.S. dollar.

Today, November 19, we’ve got news from good to bad.

  • Good news out of the Organization for Economic Cooperation and Development (OECD). That group projected that the economies of its 30 members—a collection of the world’s developed economies—will grow by 1.9% in 2010. That’s up from the group’s June forecast of 0.7% growth for 2010. The forecast for the United States in 2010 went up to 2.5% from 0.9%. Outside the developed economies, the OECD projected that China will grow by 10.2% in 2010.

  • Bad news from the Organization for Economic Cooperation and Development. Unemployment, which typically continues to rise even after an economy starts to grow again after a recession, will continue to grow in 2010 in its 30-member nations. Unemployment will hit 9% by the 3end of 2010 across its member economies.

  • Bad news from the U.S. index of leading economic indicators. The index indeed climbed by 0.2% in October but that was less than the 0.4% gain economists had expected. I think these indicators are pretty much useless when it comes to predicting anything, but hey, if you want to worry about the economy slumping back into recession, the number is as good an excuse as any.

  • Bad news from the U.S. report on initial claims for unemployment. The number came in at a seasonally adjusted 505,000 for the previous week. That was flat with the week before (which was adjusted up to 505,000 from 502,000. If you were expecting a decrease in the number of people filing for unemployment for the first time, this was a disappointment.

  • Bad news from Bank of America’s (BAC) stock analysts on the chip sector.”Inventories in the supply chain are approaching a level suggesting a modest overshoot versus equilibrium levels,” the bank said. It downgraded Intel (INTC) and Texas Instruments (TXN).


All that, however, takes back seat to the U.S. dollar, which finished the day up.4% against the euro.

Don’t try to figure out why that mix of good and bad news would be good for the dollar. You’re still thinking like fundamentals matter.

Instead note that the dollar had sunk to a 15-month low and was bouncing off that level. The currency started the day strongly on that bounce and then lost ground as traders took profits on the move. At 3 p.m. today the U.S. dollar index was up about 0.6%.

As you’d expect gold was down on the dollar’s bounce (by $8 an ounce as I write this) and stocks, which have moved in the opposite direction to the dollar for months, also fell.

This kind of chop is exactly what investors should expect from a market with an ocean of cash that’s willing to flow in any direction that promises a short-term profit.

This kind of move, in my opinion, doesn’t signal anything about the longer-term, but still short-term trend of the market between now and the end of the year. I think that trend is still up. But don’t expect it to be smooth.

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