When the Dollar Rallies Higher Traders Listen

This morning the major stock market indexes are all under pressure. There are a couple of obvious reasons for this action in the stock market today. The first reason for this decline today is the weakness in the Shanghai Index (Chinese stock market) last night. The Shanghai Index dropped by nearly 3.0 percent last night. As we all know by now the Chinese markets seem to lead the global markets. The world is betting on the growth in China to keep the markets strong by consumption. The second major factor for today's stock market decline is the stronger U.S. Dollar Index. When the U.S. Dollar Index trades higher the major market indexes seem to deflate. Remember that most commodities are traded in U.S. Dollars. Since early June the U.S. Dollar Index has declined by nearly 10.0 percent. Ironically, the stock market indexes have rallied higher by about 10.0 percent since early July. When the U.S. Dollar declines the major market indexes will inflate; it is that simple at this time. Major commodity stocks such as Southern Copper Corp SCCO, AK Steel Holdings Corp AKS, and Cliffs Natural Resources Inc CLF will all come under pressure when the U.S. Dollar trades higher. Today the FOMC will meet and announce any changes in policy. The Federal Reserve Bank is expected to leave the fed funds rate (overnight lending rate to the major banks) at 0.0 – 0.25 percent. This is where this key rate has been since December 2008. Essentially, the large major banks can borrow money for free from the Federal Reserve Bank and buy U.S. Treasuries, have their credit card business, and do proprietary trading to make money. They no longer need to lend money to their prospective borrowers. Therefore, it is critical that the Federal Reserve Bank keep these rates at near zero percent in order for these major banks to keep making money. When the U.S. Dollar rallies higher the major market indexes simply deflate. The opposite is true when the dollar declines the major stock market indexes will inflate and trade higher. Therefore, the action in the dollar is the driving force behind every market move. Nicholas Santiago Chief Market Strategist www.InTheMoneyStocks.com