Weaker Equity Markets Trigger Turnaround in Dollar

James Hyerczyk from ForexHound.com at 11/30/09

 

The inability of U.S. equity markets to follow-through to the upside after the Dollar weakened has helped the currency reverse its early morning course. The Dollar broke overnight as debt problems in Dubai eased over the week-end.

Stock markets failed to attract strong buying after mounting a strong recovery following a sell-off late last week. This is a sign that investors may be content with this year’s gains and fearful of adding additional risk to this year’s portfolio.

December Treasury Bonds and Treasury Notes turned around after trading lower overnight. Weaker equity markets are causing investors to take a look at safety at this time rather than return.

The U.S. Dollar traded lower throughout the night and morning sessions as concerns eased over the Dubai World debt issues. Traders who had bought the Dollar for safety ahead of the week-end sold the currency as demand for higher yielding equities and commodities increased.

The lack of follow-through to the downside after the New York opening and inability for U.S. equity markets to mount a strong recovery rally following last week’s late sell-off is currently helping the Dollar Index futures contract hold the recent low at 74.27 and regain the psychological resistance at 75.00.

February Gold has been see-sawing throughout the day as the Dollar has moved both higher and lower. The lack of interest in the upside could be a sign that investors are considering this market overbought at current levels. This could trigger the start of a substantial profit-taking correction especially if the Dollar begins to mount a strong comeback.

March Crude Oil is holding onto its gains but lower equity markets and a firmer Dollar are helping to limit its upside movement. A weak economy is helping to keep pressure on demand. The charts also suggest that the way of least resistance is down because of the lower-top, lower-bottom formation.