• Online Forex trading Community

Strong Dollar Limiting Risk for Higher Yielding Assets

James Hyerczyk from ForexHound.com at 11/19/09


The strengthening Dollar is leading to a sell-off in equity, oil and gold markets this morning as investors are leaving higher risk assets for the safety of the Greenback and U.S. Treasuries. 


Equity prices are falling across the board in Asia, Europe and the U.S. as global investors are cashing in positions after stocks failed to accelerate to the upside on the prospect of lower interest rates and a weaker Dollar.  Concerns about the strength of the global economy have been raised following recent comments from Fed officials regarding the state of the U.S. economy. This is giving investors an excuse to book profits. Traders are concerned the stock market is too far ahead of the economy and are beginning to question valuation.  This could trigger a sizable correction over the short-run.


Treasury futures are likely to benefit if equity prices sell-off sharply.  Investors are likely to pressure stocks if the Dollar continues to strengthen.  Traders will be looking for safety rather than yield.


The U.S. Dollar is trading higher against most major currencies this morning with the exception of the Japanese.  Easing in equity, gold and crude oil prices is sending a signal to traders to lighten up positions and book profits after the recent decline in the Dollar.  The inability to accelerate the Dollar to the downside is also contributing to the rally.  Shorts seem to have pulled offers after the down side momentum stated to flatten out. 


The December Euro failed to take out $1.5000 which came as a surprise to traders.  Yesterday’s rally in the Euro following comments from Luxembourg’s Juncker should have given the Euro the green light to challenge the high for the year at $1.5063, but when traders failed to print $1.5000 last night, the market turned seller. 


The December British Pound is trading weaker.  Overbought conditions are contributing to the weakness, but the major concern for traders today is the U.K. economy and the country’s debt situation.  Investors are concerned about bank credit issues.  The recent Bank of England minutes indicate that members are split as to how to handle the quantitative easing program.  Some wanted to expand it, others did not.  This means that all members are not on the same page in reading the economy.


The Dollar is losing ground to the Japanese Yen.  Repatriation of funds is helping to boost the Yen.  Some traders are buying the Yen in speculation that a softening in the Chinese Yuan may be beneficial for the Japanese economy.


A sell-off in equity, gold and oil prices is helping to drive the December Canadian Dollar lower.  Appetite for risk seems to have been taken off the table.  This is putting pressure on commodity-based currencies like the Canadian Dollar.


Yesterday’s close near the low of the day following a new high for the year was a sign that that gold market was weakening.  Today’s follow-through to the downside indicates that a top could be forming in December Gold. Based on the strength earlier this week and the size of the rally, this market could be vulnerable to a serious sell-off if the Dollar begins to overcome important resistance levels. Weekly closes will become more important if the sell-off continues throughout the day and spills over into tomorrow.


January Crude Oil is trading weaker.  Fundamentally this market should be a lot lower because of a bearish supply/demand picture.  If the economy is going to weaken as expected, then demand should continue to fall.  Speculators are supporting this market at this time.  Sharply lower equity prices and a stronger Dollar could force the specs to liquidate positions. 

Main Menu