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Flight to Safety Helps Boost U.S. Dollar and Treasuries

James Hyerczyk from ForexHound.com at 10/28/09


The U.S. Dollar rallied for the fifth straight day and equities fell for the fourth straight day as investors blew out of higher risk, higher yielding assets. 


Equity markets fell sharply as traders are cashing in on the six-month rally on the perception that central banks may begin to pull out of their stimulus programs.  A weaker than expected new home sales report also encouraged selling pressure as traders are now beginning to fear the possibility of a double-dip recession.


The December E-mini S&P 500 took out a key retracement area at 1056.75 to 1047.00.  This area is likely to become new resistance.  If the market can regain this price zone then look for the start of a vicious rally to 1070.00.  In my opinion, there is still one strong rally left in the tank as bearish traders will want to get short at a higher price by setting up a secondary lower top.


Treasury futures rallied again today.  The break in equities and commodities is driving investors to the December T-Bonds and T-Notes in search of a safer but lower yield. The auction today went off without a hitch.  Tomorrow’s auction is also expected to show considerable interest.  Despite talk of Dollar losing its status as the world’s reserve currency, there has been no sign of left up of foreign demand during this week’s auctions.


The U.S. Dollar rallied sharply higher as higher yielding currencies fell sharply.  The December Euro and December Canadian Dollar were hit hard as traders felt crude oil and equities.  The December British Pound traded flat while repatriation drove the December Japanese Yen sharply higher.


December Gold fell sharply as the Dollar strengthened.  This market finally retraced 50% of its last rally to $1028.80.  The bounce off this level was minimal which suggests that a failure at this level could trigger a further decline to $1018.00.  Oversold conditions could attract short-covering with $1043.00 the next likely upside target.


Higher than expected gasoline inventories, and a stronger Dollar helped to tank December Crude Oil on Wednesday. Speculation, higher equity markets and a weaker Dollar helped bring this market up, and will now be contributing factors to its decline.  The chart pattern suggests plenty of room to the downside with a break to 73.00 to 71.70 very likely over the near-term.   

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