The most important number in finance is moving higher once again…
This is big news. This number spent 2017 in freefall. It declined a full 10%. Now, that trend appears to be over.
It’s once again moving higher… And that should continue, as I’ll show.
It could hit multiyear highs in the process. And that could affect nearly every investment around the globe.
Let me explain…
So what is the most important number in finance?
It’s not interest rates or the unemployment rate.
The Federal Reserve doesn’t control it.
It’s completely market-driven, and beyond the thumb of the U.S. government.
The most important number in finance is the value of the U.S. dollar.
The U.S. dollar has a value just like everything else. It’s measured against a basket of global currencies and affects just about everything in global finance.
A falling dollar, for example, makes life easier for U.S. companies selling overseas. It also boosts returns for U.S. investors putting money to work outside the country.
That worked great last year. German stocks, for example, jumped 13% in euro terms last year. They were up 28% in U.S.-dollar terms, thanks to a 10% decline in the dollar.
The falling dollar had a huge effect on global finance last year. But the currency staged a major reversal in recent weeks. Take a look…
The recent rally has been strong. The dollar is up nearly 6% from its February bottom – a big move for a currency.
This should continue, too.
You see, the dollar’s recent rally came off a major sentiment bottom. Futures traders hit extreme bearish levels in recent weeks. The chart below shows it…
The chart shows the commitment of traders (COT) report for speculative bets on the dollar. This is what real futures traders are doing with their money. And you can see that their bets hit a multiyear low recently.
Specifically, the COT bets on the dollar fell to a multiyear bottom in November. They’ve come up as the dollar rallied. But futures traders are still bearish… And that’s a contrarian signal that the dollar’s rally could continue.
We’ve seen similar negative levels 13 times over the past decade. Twelve of those 13 instances led to gains over the next year, with typical upside of 8%. And peak gains topped out at 20%… so the recent rally could be just the beginning.
This is big news.
A further 10%-plus dollar rally could be a boon for U.S. companies buying goods abroad… but it’ll also be a headwind for investment in foreign markets.
The value of the U.S. dollar is the most important number in finance. It’s currently rallying for the first time in months. And history says that should continue.
That makes this a major trend to watch for the rest of this year.
Good investing,
Brett Eversole
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Source: Daily Wealth