Sharp US dollar declines mean good things to the I fund
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, 02-20-2013 at 12:02 AM (3300 Views)
We all know Europe has been struggling lately. But there are signs that they are turning a corner. Just today the German DAX Composite shot up after a better than expected consumer confidence report. And the iShares MSCI EAFE Index Fund (EFA), which roughly tracks the TSP’s I Fund, benefited as well. Index Universe.com reports indicate that EFA short interest has been dropping lately; 8% in December and 24% in January.
And then there are currency differential in these exchange traded funds that can add volatility, where we see large advances and drops for no apparent reason. In the chart below of the US dollar index (USD) in the weekly timeframe, I show a three day exponential moving average in the main frame and the EFA in the panel above. The boxed areas show where the USD is falling sharply, while the EFA is rising. Although the relationship is not perfect it is definitely there and something to keep in mind.
At the present, we have a rising USD, but see a negative divergence on the RSI, ROC (rate of change), and MACD as well. So I don’t think the USD bounce will go too far. Also in the EFA panel on the chart, we see that EFA has drifted below a longer term red support line in May of 2012, but is now trying to regain it.
Watch for the USD next larger pullback and some wild moves in the EFA and I fund. I am thinking this may be sooner than some expect.
Jan. ETF Short Report: EFA Shorts Drop 24% - Yahoo! Finance