What a Weakening Dollar Could Mean for the Market

The Russell 2000 (IWM) and the Nasdaq 100 (QQQ) both broke their 50-day moving averages. Meanwhile, Transportation (IYT) printed another new all-time high. This shows the market’s current indecision and choppy nature.

The market’s uncertainty may be related to inflation, which is set to increase beyond 2% going into 2022. Another factor within the inflation realm is the decreasing value of the U.S dollar (UUP), which is not far from this year’s all-time low at $24.05.

It can be debated historically that a weakening dollar does not contribute to rising inflation as, in the past, countries that export to the U.S have a fair amount of competition and could eat the cost of a weaker dollar for the benefit of doing business with the U.S. So why is this time different? Not only does the U.S have $28 trillion dollars of debt, but it is also looking to add even more.

However, the biggest move in UUP will come first from a shift in investors’ sentiment, as they perceive the U.S dollar as a weakening currency. This is how the dollar could move lower, as investors turn away U.S issued bonds looking for safer places to park their money. Additionally, if the dollar becomes weak enough, it could be tempting for enough countries to increase their export prices.

With that said, this is a long-term trend that has yet to unfold, but should not be taken out of the picture, especially if the dollar continues to trend lower.

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ETF Summary

  • S&P 500 (SPY): Broke the 10-DMA at 418.10
  • Russell 2000 (IWM): Next support area from 217 -218.50
  • Dow (DIA): 342.43 main support area
  • Nasdaq (QQQ): Broke 325.87 the 50-DMA
  • KRE (Regional Banks): 71.53 resistance. Next support from the 10-DMA at 69.53
  • SMH (Semiconductors): Needs to hold over 232.80 support
  • IYT (Transportation): Nearest support the 10-DMA at 273.10
  • IBB (Biotechnology): Support 146.86
  • XRT (Retail): 92.21 recent low is next support level

Forrest Crist-Ruiz


Assistant Director of Trading Research and Education