Interesting. There is a change occurring withing the currency markets of late. What was sold off during the March-May mega rally is now being bought. Japan’s Yen, England’s Pound and the U.S. Dollar are once again gaining favor.

Notice the first of three charts that we posted below show the initial two months of the year when equity markets were in upheaval and then end of the financial markets seemed imminent. The performance of the U.S. dollar as compared to major currencies was uniform and absolute. There is really nothing more to say than there was a definite flight to safety toward the few countries that were seen as being able to weather the storm.

(Click HERE for Bloomberg Global Currency page)

(The charts represent relative performance against the U.S. Dollar)

Then, starting in March, there was a shift in global risk appetite and as equities rebounded, so did the transfer from safety of the U.S. dollar to the currencies of the commodity-based economies. Money flowed away from the U.S., helping to supercharge smaller equity markets while increasing commodity prices along the way. The cycle fed upon itself as the higher commodity prices helped to show investors that there was a general stabilization of the world economy.

As confidence returned, more money was plowed into the emerging markets, helping their currency and hurting the dollar. Once again, that pushed general commodity prices skyward, and in particular, crude oil.

Now, investors are looking for substance-over-style that shows that the global economy is beyond stabilizing, on the verge of growth. Unfortunately that is not occurring. In fact, we are still hearing of many countries increasing stimulus and decreasing interest rates. Even as China looks to be recovering, it is primarily from internal stimulus as there has been recent reports showing that exports are still slowing along with lackluster domestic demand.

Yes, the recent retail sales number in China showed a 25% increase, month over month. Bu any measure that is impressive, but that money seems to be finding its way into excess goods as the majority was used to apparently buy jewelery. Or perhaps said another way; hard assets.

The reality is that even with the pump priming, commodity demand is waning and pricing is starting to weaken as China has slowed its stockpiling, at least temporarily.

June shows a much different story for the U.S. dollar as money is once again flowing into the currency in an obvious flight to safety as the global recovery is not moving as quickly as was anticipated. Even as the media tries to desperately show a recovery in full swing, the best they can muster is to prove that we may have stopped the deep decent and a bottom may be forming.

The question that begs to be asked: Is this a trend based on a larger concern or simply a healthy correction?

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