The Consequences of a Strong Dollar

I have spoke often about the consequences of a strong currency. In the case of the US, the weak dollar in the first half of the year has helped to contribute to Q2 and for some Q3 corporate earnings as well. However I strongly believe that Q4 earnings will be very bad. Partly because of the global recession and partly because of the strong US dollar.

There is an article in the Wall Street Journal today titled “Stronger Dollar Cools Sales in Overseas Hot Spots” that talk about this same theme.

But I want to show you their charts on US exports:

Source: WSJ

Source: WSJ

And now take a look at a chart of the Dollar Index:

Source: Bloomberg

Source: Bloomberg

Do you see the correlation?

Also, the strength of the Japanese Yen is a big reason why Toyota is forecasting their first loss in 7 DECADES!!

Source: WSJ

Source: WSJ

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3 Comments

  1. Very interesting post. The graphs emphasize your points.
    It seems that the Outside Demand graphs react in about a quarter’s delay after a major move in the currencies.

    Reply
  2. I am looking at the daily charts for EURUSD and I see that the fast and slow stochastics not overbought, but the RSI approaching 70 in a decline. Apart from the fundamentals mentioned in the article am I right to say that the MACD has potential to increase too?

    Reply

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