Global investors continue to pile into the U.S. dollar, making it the primary safe-haven trade. This may eventually trigger a broad and deep selloff in U.S. stocks. As the USD continues to strengthen, corporate profits for U.S. multinationals will begin to disappear.
The following chart by Finviz shows the percentage the USD has appreciated against all the major global currencies during the past month:
In the current market environment, it’s imperative to assess your trading plan, portfolio holdings and cash reserves. Experienced traders know what their downside risk is and adapt as necessary. Successful traders manage risk by utilizing stop-loss orders, rebalancing existing positions, reducing portfolio holdings, liquidating investments and moving into cash.
USD/JPY UP +13.29% Versus S&P 500 -12.76%
The S&P 500 peaked on Jan. 5, 2022, and after three months put in a lower top on March 29, 2022. In comparison, the U.S. dollar has gained steadily throughout 2022 as noted in the FX currency pairs USD/JPY, USD/CHF,and USD/CAD.
Interestingly, we can see that as the USD is picking up steam to the upside as stocks are selling off. It appears that the money that is coming out of the equity markets is going into cash. But not just any cash, but specifically into U.S. dollars.
The global appetite for the U.S. dollar and its subsequent rise can kill the stock market, as U.S. corporate profits dry up and U.S. consumer purchases in U.S. dollars rise to levels that are no longer sustainable.
United States Dollar – Global Comparison – Oanda • Daily
GBP/USD Lost 36.30% 2007-08
During the financial crisis of 2007-2008, the British Pound versus the U.S. dollar, GBP/USD lost 36.30% in 14 months. Translation: The USD gained 36.30 against the GBP!
The current drop in the GBP/USD has been roughly 13% over the last eight months.
Potentially, GBP/USD could move down another 20% over the next six months or longer if the downturn lasts for an extended period. Translation: The USD has the potential to gain an additional 20% against the GBP!
GBP/USD – British Pound Versus U.S. Dollar • FXCM • Monthly
AUD/USD Lost 39.20% 2007-08
During the financial crisis of 2007-2008, the Australian dollar versus the U.S. dollar, AUD/USD, lost 39.20% in just four months. Translation: The USD gained 39.20 against the AUD!
The current drop in the AUD/USD has been roughly -.42% over the last month.
Potentially, AUD/USD could move down another 30% over the next three months or longer if the downturn lasts for an extended period. Translation: The USD has the potential to gain an additional 30% against the AUD!
