The currency market may be sending a warning to stock market investors

As the dollar index continues its decline and touches a seven-month low, some strategists see clear signals coming from the 6 percent drop in the U.S. currency.

"The classic interpretation is that a lower dollar is positive for U.S. multinationals because they source everything in dollars and sell it in euros and all the other currencies. But something else is going on in the currency market that really perked up my ears," Boris Schlossberg, BK Asset Management managing director of foreign exchange strategy, said Wednesday on CNBC's "Power Lunch."

Schlossberg has observed a "massive" increase in volatility across the currency market this week, and said such activity could give way to an uptick in volatility in equities, where recent moves have remained markedly muted.

The euro's strength has weighed particularly heavily against the dollar this week; on Wednesday the euro was at its highest level in a year against the U.S. dollar as European Central Bank president Mario Draghi made comments on the state of monetary policy. The dollar's value against the euro is the largest component of the dollar index basket.

Draghi's remarks about gradually adjusting the bank's monetary stimulus were taken as hawkish by the markets. Rising interest rates are generally seen as a positive for a country's respective currency, as its value is boosted and appears more attractive for investors relative to foreign currencies.

The heightened volatility across currency markets and in the dollar may be a result of Draghi's comments, Washington Crossing Advisors portfolio manager Chad Morganlander said Wednesday on CNBC's "Power Lunch."

The dollar's movement at this point is largely about global monetary policy and the growth of the Eurozone and emerging markets, Morganlander wrote Wednesday in an email to CNBC. In the short term, he added, improving global growth outside the U.S. and a softer dollar will provide support for the S&P 500.

In the longer term, Morganlander noted, the Federal Reserve's normalization of monetary policy (and thus, rising interest rates) will support the dollar.

"What the dollar is telling me is that global growth, overall, has been very good — in excess of expectations. A little bit of a slowdown and a softening here, but nonetheless, on the [emerging markets] side as well as on the developed side, it has been positive," Morganlander said Wednesday on CNBC's "Power Lunch."

In a pattern of fund flows that they believe could signal the beginnings of a turnaround for the greenback, Bank of America Merrill Lynch foreign exchange strategists wrote in a note this week that investors have bought the dollar for the last two weeks after selling for the last nine.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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