Beware the Currency Market Turmoil

There have been two big trends influencing the markets during the past several months, particularly since early December, and they are the decline in oil prices and the rise in the value of the U.S. dollar vs. rival foreign currencies.

I wrote about both of these trends in last week’s issue, as well as in the most recent issue of my Successful ETF Investing newsletter.

This week, the big noise came from another currency market, as the Swiss National Bank, or SNB, unexpectedly removed its cap of the franc to the euro. Why was this done? Well, because the SNB thinks that the European Central Bank, ECB, is going to implement some type of a very large quantitative easing (QE) program when it meets next week, and that move would be euro bearish and Swiss franc bullish.

It also will likely be dollar bullish, and that means more upside for the greenback and the U.S. Dollar Index.

Now, another thing the currency market turmoil is telling us is that the global economy is a treacherous place right now. There’s a lot of stress being put on currency markets in anticipation of the ECB’s QE decision, and that’s causing the dollar to rise — and dollar-denominated assets such as oil and other commodities to falter.

The chart below of the benchmark commodity index, the DB Commodities Tracking Index Fund (DBC), tells us all we need to know about the value of dollar-denominated assets and their plunge during the past six months.

At this juncture, investors need to really be aware of the machinations in the currency markets, as the fate of the greenback has much wider implications for oil, commodities, multi-national corporate earnings and bond yields.

Not being aware of this situation is both negligent — and flat-out dangerous.