after strong dollar

fig 1

strong dollar

fig 2

yoy dollar index in historical high
largely due to lower CPI than trade partners

fig 3

http://runmoneyrun.blogspot.kr/2015/04/reerneer-inflation-ratio-from-bis.html
http://runmoneyrun.blogspot.kr/2015/04/relay-of-inflation-and-devaluation.html

relative CPI calculated from NEER/REER ratio (from BIS)
~= relative CPI calculated from (Nominal dollar index)/(Real dollar index) (from FRED)

dollar index, strong correlation with relative CPI since 2007

fig 4

the same is true for euro.

but euro is weaker even after considering inflation.

partly from stronger deflationary pressure in us (not in euro).

sounds strange? see below.

evident that QE of ECB, grexit is also affecting weak euro.

fig 5

comparison of inflation of major trade partners included in index (except korea)

largest and fastest reduction of CPI in US.

is the evidence that relative CPI in fig 3 is effective tool.

fig 6

us CPI looks different from core CPI.

because of large propotion of energy price.

fig 7

energy CPI is a key determinant for large reduction of us CPI.
but food CPI is not.

http://www.advisorperspectives.com/dshort/updates/Inflation-X-Ray-View.php
"energy is weighted at 8% of CPI."

-20% * 8% = -1.6%   -> reduction of CPI from energy price.


stabilization of oil price will result in large reduction in relative CPI and dollar index.

maybe shocking!

fig 8
http://runmoneyrun.blogspot.kr/2015/02/time-flies-like-arrow-inflation-is.html

if oil price is maintained in present range, CPI will go up earlier than indicated in the fig.

SO WHAT?

Beware of STRONG won even after FED rate rise.

Do not buy dollar. 

If you should buy any kind of dollar assets, hedge the position.