The normal correlation of “dollar up = stocks down” and visa versa – has been on its head for some time now. As you’ve likely seen over the past few days while stocks have staged a small rebound, the USD has also continued higher. The two have been trading in tandem.
I’m expecting the dollar to turn downward tomorrow or very early next week – with full expectation that stocks will also make another leg lower.
Something else to watch in coming days will be the currency pair USD/JPY, as the BOJ’s recent efforts to further weaken the Yen has spurred buying across markets with carry traders (as suggested month earlier) clearly taking advantage of the easy money. Weakness in USD/JPY will now correlate with weakness in risk, and markets in general.
I don’t imagine the BOJ has much more to add ( here at their meetings over the weekend ) and in turn – expect this would be a great time for a bounce in Yen, and a further move toward “risk aversion”.
I’m looking to get short USD and “long” JPY ( at the same time – which some months ago would have been sheer lunacy as they are both considered “safe havens” – and I would never have had opposing trades including these currencies) giving you further indication how significant the moves out of Japan have been for markets in general, and add further credence to the study of fundamentals in trading.
Stock guys…..I would look for hedges, or short-term plays in some kind of inverse or “bearish” ETF.