Tuesday December 1, 2009 - 19:18:03 GMT
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Dollar Weakness Boosts Commodity and Equity Demand
The weaker Dollar is helping to boost commodity and equity demand as investors are once again feeling comfortable with taking on more risk.
U.S. equity markets opened higher as expected. The current rally in the December E-mini S&P 500 has this market in a position to test the most recent top at 1112.25. Upside momentum seems strong enough to pop through this resistance. The next target for this rally is the major 50% price level at 1122.00.
The strength is in the December E-mini Dow which took out its recent top at 10486. The weakest market is the December E-mini NASDAQ which is still well under its main top at 1813.75.
The rise in higher yielding assets is pressuring the Treasury markets this morning. Yields for both March Treasury Bonds and March Treasury Notes are rising as these two instruments are forced to compete with the higher yields investors are getting in the equity markets.
Support for the U.S. Dollar continued to erode this morning collapsing the Dollar Index to near last weekâ€™s low at 74.27. A break through this level sets up a further decline to 73.67.
News that Chinese manufacturing rose to a seasonally adjusted level of 55.7 helped drive the December Euro over $1.51. Later this week, the European Central Bank is set to meet. Traders expect interest rates to remain unchanged, but the ECB should announce plans to gradually end government stimulus plans.
The December British Pound is up sharply at the mid-session. Although the market fell yesterday because of an unexpected drop in consumer confidence, it has rebounded today on the news that the U.K. housing sector is mounting a strong recovery.
The Dollar is gaining ground on the Japanese Yen. Overnight the Bank of Japan took action to weaken its currency. The Bank of Japan voted earlier this morning to leave interest rates unchanged while deciding to provide three-month loans to commercial banks at an interest rate of 0.10 percent. This action by the BoJ is expected to help stimulate growth and prevent deflation.
News that Russian will add the Canadian Dollar to its Forex reserves, along with higher equity and commodity markets, is helping to pressure the Dollar against the Canadian currency. As demand for higher yielding assets increases, look for continued strength in the Canadian Dollar.
February Gold broke through the $1200 barrier for the first time. The weaker Dollar is providing all of the support at the mid-session. Look for gold to close firm unless the Dollar reverse course.
March Crude Oil is mounting a strong rally at the mid-session. News that Chinese manufacturing is up has helped increase demand for crude oil. Greater demand for higher yielding assets is also helping to boost prices. The trend remains down until the last main top at 82.30 is violated, but regaining a key retracement price at 80.27 has put a bullish tone in this market. A break back under 79.24 will be a sign of weakness.
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