From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

All eyes have been on the US dollar and interest rates in recent weeks.

Last week, we saw a timely kick save from the bond market as the 30-year reclaimed its summer lows. Whether the latest rebound in rates will hold is yet to be seen as the 10 and 30 are currently chopping sideways just above our risk levels. We’re watching the long end of the curve closely to see how yields react at these critical levels.

But what about the US dollar?

When we analyze the US Dollar Index $DXY, it’s hard to be bearish, as price is consolidating in a tight continuation pattern following a base breakout and swift leg higher last month. As usual, the direction in which the DXY resolves will have broad market implications and will affect risk assets around the globe.

We know you’re probably tired of hearing it, but this is another big week for markets -- especially the dollar!

If there is anything that can get this market going it's the US Dollar.

And granted, the S&P500 did just close at a new all-time high. That did happen Friday.

But as we have documented relentlessly here, most stocks are not doing that.

The Average stock on the Nasdaq is down over 30% over the past few quarters.

Most Emerging Markets got destroyed. Chinese Internet is down 60%. Biotechs are crushed down almost 40%. The IPO Index killed. And ARKK Funds are down over 40%.

All is not well underneath the surface.

In fact, all of those sectors I mentioned peaked in February this year. That's when the Nasdaq New Highs list peaked and Nasdaq Advance-Decline lined also peaked.

Most importantly (potentially) is that was when Aussie Dollar peaked, and I don't believe that's a coincidence at all:

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Last week, we pointed out that commodity-centric currencies were beginning to slide. 

Our petrocurrency index was making new 52-week lows, and the Australian dollar was on the verge of breaking down. By Friday’s close, the AUD/USD cross looked to have completed a topping pattern and was trading at its lowest level since the summer of 2020.

Seeing one of the world’s leading commodity currencies break down from a major distribution pattern would not bode well for commodities and other risk assets.

But the bulls aren't ready to roll over yet. Investors are back on offense this week, as buyers have already repaired all or most of the damage that was done to stocks and commodities last week.

They needed to come out swinging after the latest flurry of selling pressure… And that’s exactly what they did! 

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

As we near the close of another month, crude oil is once again front and center.

At the end of October, black gold was ripping to new seven-year highs while interest rates rose and cyclical stocks kicked back into gear. 

Today, this picture has dramatically changed. 

Crude oil is currently about 20% off its highs, as prices have collapsed back below our risk level.

Crude dropped $10 during last Friday’s volatile session and continues to slide lower this week. Just look at this bearish candlestick on the monthly chart:

It's Saturday Morning Chartoons time. 

This is the weekly post that aggregates all the charts we put together throughout the week and organizes them all into one, easy to flip through deck.

You can find the whole list of trades here.

Below you'll find the full PDF of this week's charts:

From the desk of Steve Strazza @sstrazza 

Welcome to our latest RPP Report, where we publish return tables for various asset classes and categories, along with commentary on each.

Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.

We consider this our state of the union address, as we break down and reiterate both our tactical and structural outlook on various asset classes. Our ultimate goal is to discuss the most important themes and developments that are currently playing out in markets around the world.

There's been plenty of action these past few weeks. Let's kick things off with stocks and try to make sense of what we're seeing.

Here's our US equities table:

For the Indian market participants, the currency section has been extremely range-bound. And it's been that way for a while now! Every time we talk about it, there's nothing new to say.

So why are we here today?

Do we have something new to say?

Maybe...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

At the beginning of the month, we pointed out the disconnect between risk assets and the currency market. 

Stocks up and down the cap scale were breaking out to new highs and energy futures were resolving higher from multi-year bases -- all while emerging-market and commodity-centric currencies approached year-to-date lows.

Something wasn’t right. 

We’d expect these risk-on currencies to catch higher given their strong correlation with other risk assets. But this hasn’t been the case. In fact, seeing as currency markets had been out of sync with other asset classes for months, we really didn’t want to overthink this development.

But what appeared to be another mixed intermarket signal proved a valuable warning.

Fast-forward to today and the weakness that was evident among emerging-market currencies is spreading to stocks and commodities. Small-caps and crude oil are retesting critical breakout levels, and cyclical stocks are failing to sustain their recent moves.

This is the video recording of the November 2021 Mid-month Conference Call.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The US Dollar Index $DXY is pressing to new highs, disregarding what many think it should be doing based on historic intermarket relationships.

Considering the bullish developments and new highs from risk assets, the strength from the US dollar continues to be a head-scratcher.

But will the breakout in the DXY hold, or will it roll over and confirm the signals coming from bonds, stocks, and commodities?

When we broke down the US Dollar Index last month, we pointed out that its strength was rather narrow in terms of how it was performing relative to most individual currencies. Long story short, the recent rally in DXY has been fueled primarily by its two largest components -- the euro and the yen. These two currencies make up more than 70% of the DXY weighting, and the fact that they are at new 52-week lows explains why the index is at new highs.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Correlations often work... until they don’t. It’s just the nature of intermarket relationships.

We can see a prime example in the recent action between the US dollar and risk assets.

The dollar has been marching to the beat of its own drum, as it's shown an unusually strong positive correlation with commodities since this summer.

Although the inverse correlation is not as strong with equities, it still exists. But the USD’s resilience during the second half of this year hasn’t stopped stocks from screaming higher. 

While we definitely aren’t in an environment where USD weakness is a tailwind, the evidence continues to stack up in favor of the bulls and risk assets. 

The dollar is just one data point. But it’s a rather important one, as the direction of King Dollar has proven to have a profound impact on other asset classes.

Today, we’re going to highlight the decoupling of USD relationships and what it could mean for the rally in risk assets.

Let’s dive in!