Friday, December 02, 2011

Stocks Lower and Dollar Higher Continuing?


The US Dollar rose to multi month highs. This comes as we see sharp losses in the Dow Jones and the S&P 500. The Dow Jones Dollar Index broke through the psychologically significant resistance at 10,000. It is currently boasting its strongest 20 day appreciation since the height of the financial crisis in 2008.

Today will feature US Nonfarm Payrolls which is foreseeable event risk for the world’s largest economy. However, traders should be aware of any surprises out of the upcoming European finance ministers meetings. Euro Zone tensions hit a new high this last week as a surprising failed German bond auction caused sell-offs in Spanish and Italian bonds. Italy paid a very high and deeply concerning 7.81 percent for 2-year bonds in its most recent auction. This was up substantially from the 4.63 percent they saw last month. Another Euro zone problem came when Standard and Poor’s downgraded Belgium’s sovereign credit rating for the first time since 1997. This was enough to push the US Dollar to significant highs, but the focus on Europe ignores key fundamental risks in the US economy.

Looking back across the pond, US Treasury Bonds rallied last week. This came in despite of news that the so called Super Committee has failed to agree upon fresh budget cuts ahead of its deadline. The lack of action from the group further underlines the political tensions and the unwillingness to get along in the current government. This might end up being a growing credit risk for the US Treasury. Still, global investors continue to flock to the relative safety of Treasury debt. However, further credit downgrades or improvement in Euro zone fiscal crises might push traders away from US debt. This might put the dollar at risk.

The next moves in Europe and as well as which way the financial market goes will be critical to Forex price action. This will come as the Buck might continue to rise as investors rush in as a flight to safety. Right now, 10-year US Treasury yields trade near record lows. That means that prices are near record highs.

Coming up, US economic data will be important.

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