Strong U.S. Dollar Biting Into Multinationals

“A hawkish Federal Reserve and heightened geopolitical tensions have driven a 14% gain in the U.S. dollar against a basket of currencies over the last year, forcing companies such as Coca-Cola Co (NYSE:KO) and Procter & Gamble (NYSE:PG) to temper expectations for the rest of the year.”

Microsoft (NASDAQ:MSFT) is one of the latest companies to warn of a fourth-quarter currency headwind.

The following was reported by Reuters on June 2, 2022:

“Microsoft on Thursday cut its fourth-quarter forecast for profit and revenue, making it the latest U.S. company to warn of a hit from a stronger greenback.”

Source: www.finviz.com

h2 USD ETF UP +16.31%/h2

Over the course of the last year, the Invesco US Dollar Index Bullish Fund (NYSE:UUP) has gained +$3.94 or +16.31%. This is at a time when the U.S. stock indices have a current year-to-date loss of Dow Jones Industrial Average 30 -9.46%, S&P 500-13.80%, and NASDAQ 100 -23.11%.

Since the U.S. dollarwas put at a major low on January 6, 2021, the trend has been solidly up.

h2 USD RETRACEMENTS ARE IN THE 2-4% RANGE/h2

As professional traders who study prices, we see that the maximum pullback in the U.S. dollar has been 57 days and -4.4%. The recent pullback in the UUP (US Dollar Bullish ETF) has only been 15 days, or -3.24%. This 3-week pullback or more importantly the retracement of -3.24% is safely within the previous retracement data sets.

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UUP (USD) remains in an uptrend and until the price confirms otherwise we should consider this trend will continue. There are significant headwinds ahead for stocks and especially multinational companies whose revenues and earnings are being diminished by the strong USD.

h2 USD HEADWINDS CAUSING PROBLEMS FOR NASDAQ COMPANIES/h2

The Invesco QQQ Trust (NASDAQ:QQQ) remains solidly in a bear market as the U.S. dollar continues to batter revenue and earnings for these global companies.

It should come as no surprise that the recent bounce in the QQQ occurred at 50% of the post-Covid bull market rally. This bull rally was +$235.83 and 50% of this is $117.91. The QQQ found temporary support about -$1.00 below the 50% level with its drop of -$118.90.

Due to globalization, most if not all of the NASDAQ 100 QQQ companies will feel the effect of the USD headwinds. Most of the group is a true multinational but for those whose business solely focuses on the U.S. market, their revenues and earnings will still be impacted by the non-USD origin of their products and or support services (manufacturing, cost of goods, etc.).

Note: Inflation is causing increases in company product/service increased pricing resulting in consumer cutbacks that may cause “The Perfect Storm” in the fourth quarter.