My friend and fellow money manager, Scott Rothbort, noted on SeekingAlpha.com that euro strength is bullish. I think he is right. The euro is over $1.21 today, the highest since mid-February. The euro is also at a multi-month high vs. the yen. A chart of the euro/USD looks an awful lot like the S&P 500 over that time frame.
Scott mentions the beneficial impact of currency translation but I think just as important, maybe more important is that euro strength (dollar and yen weakness) is a sign of lessening risk aversion which is in turn a sign of improved confidence in the global economic outlook.
And it is not just the euro. Emerging market currencies have rallied as well. The Mexican Peso has rallied 10% in the last two weeks and is now down just 2% on the year. Even Eastern European currencies have rallied led by more stable nations like the Czech Republic. Dare I note that even Ukraine’s currency has rallied over 10% and is now down just 4% this year.
I see currency movements as investor sentiment on the global economic outlook. Right now currencies are improving which is a positive for stocks.
Position: No positions mentioned but client holdings, including my personal accounts, are positively leveraged to euro and emerging market currency strength including CETV and NIHD.