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Dollar Rallies as Traders Turn Risk Averse Overnight

James Hyerczyk from ForexHound.com at 10/30/09


The Dollar is showing signs of strength this morning.  This could be an indication that traders have out yesterday’s friendly GDP Report behind them and are looking at the future of the economy.  The Dollar traded weaker yesterday after the U.S. Third Quarter GDP came out better than expected.  Looking at the chart formations, however, it doesn’t look like any markets made any significant changes in trend.  It looks as if traders were adjusting positions after the Dollar rallied earlier in the week.  A rally today in the Dollar will be a strong indication that traders are becoming more risk averse.


December Gold is trading lower because of the stronger Dollar.  Technically this market finished a 50% retracement of the $1072.00 to $1026.90 range.  The upside objective at $1049.40 stopped the rally.  The strength of the Dollar will dictate which direction gold moves today.


December Crude Oil is feeling downside pressure.  The weakness overnight reflects the fact that traders are looking at the bearish supply and demand data.  Speculation, higher equities and the lower Dollar had been driving crude oil higher.  This week a shift in sentiment is taking place that is driving investors out of higher yielding assets.  This could trigger a break to 73.00 to 71.70.


Equity futures nearly completed a 50% retracement of their recent declines.  The speed of the rally indicates that it was mostly short-covering rather than new buying.  Yesterday’s friendly GDP Report helped trigger the rally, but it was based on old data.  Traders will now be looking at whether the economy will be able to sustain the gains if the Fed begins to end its stimulus programs.  Many investors believe that stock prices have anticipated a fast, steady recovery when in fact it may be slow and rough.


Treasury futures could give back some of yesterday’s losses if equity prices weaken. If demand drops in higher yielding assets then look for lower yielding assets like the December Treasury Bonds and December Treasury Notes to benefit. 



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