Stock Market following the currency market

This week is quite light on important economic data. At the moment the short term moves in the stock market are being dominated by the Euro/dollar exchange rate. The stock market moves up when the dollar falls and vice versa. The fall in the dollar lifts commodities and stocks which get a good portion of their earnings from overseas.
Considering the issues facing Europe and the large drop in the services ISM index last week, I think the market is actually holding up quite well. I think the good headline jobs number has alleviated some of the macro concerns. Although I was bearish biased for May, I am loosing some level of conviction on that view point.

When I look at the data released over the last few weeks, it does appear that there is some slowdown in the economy, but it is possible investors think this is just a small hiccup and they are looking beyond that. The other explanation for the market holding well is that over the last few weeks we have started to see strong mutual fund inflows, when that happens the market goes up irrespective of fundamentals as most money managers don’t hold cash and invest most of the inflows.
The other remarkable thing is that despite high gas prices and sluggish job growth, consumers keep spending as retailers continue to report good numbers. So it does appear at least as of now the macro issues are not hurting the bottom line of companies. Stocks will continue to hold well as long as investors think earnings will continue to grow.

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