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Tumbling Dollar Sends Equities Markets Sharply Higher

James Hyerczyk from ForexHound.com at 11/10/09


Demand for higher risk assets helped to trigger a strong rally in U.S. stock markets.  The December E-mini Dow contract took out the October high at 10068 and made a new high for the year. The December E-mini NASDAQ and S&P 500 closed within striking distance of their highs for the year. The action by the Fed last week combined with bearish unemployment report is expected to keep pressure on interest rates which is helping investors build confidence in the long side of the market again. News that the G-20 finance ministers failed to back the Dollar at its meeting over the week-end, fueled most of the rally today. 


The U.S. Dollar Index reached a 15 month low on Monday following a massive sell-off against most major currencies.  The Dollar has gone down since November 3 when it topped at a 50% price at 77.50.  The 2008 bottoms at 73.79 and 73.67 are the next downside targets.


The Greenback was trounced on Monday after the G-20 finance ministers failed to discuss the value of the Dollar at their week-end meeting, thereby, effectively offering no support.  In addition, they decided to keep stimulus measures in place until the global economy can show sustained gains.


The real selling pressure hit the Dollar after an IMF report issued at the meeting said, the Dollar has moved closer to “medium-term equilibrium” but “still remains on the strong side.”  This statement was a shot at the Dollar being overvalued versus the Asian currencies particularly the Chinese Yuan.  Aggressive traders seized this moment as an opportunity to increase selling pressure on the Dollar overnight and throughout the New York trading session.


The fact that the G-20 Finance Ministers failed to talk up the U.S. currency came a few days after the Federal Reserve voted to leave interest rates at historically low levels, and it was reported the U.S. lost more jobs while boosting the jobless rate to a 26-year high. All of this added up to a perfect storm versus the Dollar.  The Fed decision itself added up to a free ride for the Dollar bears until the Fed meets in December.  With interest rates at historically low levels and plenty of liquidity available, traders should continue to treat the Dollar as the world’s funding currency throughout the foreseeable future. 


December Gold rallied to a new all-time high because of the weaker Dollar.  Now that this market has pierced the $1100 barrier with conviction, look for this price to become short-term support. December Silver closed up but is still struggling to take out the October top at 18.17.  This could be because traders are using silver as a hedge against gold.  December Copper also traded firm but settled below its October top at 3.069.


December Crude Oil took back all of last Friday’s break with a strong move to the upside.  Higher equities, a weaker Dollar and increased speculation are providing the major support.  Traders are speculating that the Dollar will continue to erode in value.  In addition, news that a hurricane is heading toward a major refining area in the Gulf of Mexico near Louisiana is also helping to boost unleaded gasoline futures.


Treasury futures closed slightly better. Early in the session December Treasury Bonds and December Treasury Notes traded lower as traders pulled money from fixed income instruments and reinvested in the stock market.  Later in the day, the inability to break the Treasuries lower led to some mild short-covering.  Technically, the December T-Bonds are holding inside of a retracement zone at 118’24 to 117’18. 


December Corn and December Wheat rallied sharply higher on increased speculation that a weaker Dollar will lead to increased demand for U.S. grain.

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