The U.S. Dollar continued to strengthen, but not because of
the possibility of higher interest rates like last Fridayâ€™s rally, but because
of debt concerns and credit ratings.
Investors poured money into the Greenback in a
flight-to-quality rally after Moodyâ€™s cut the credit ratings on six Dubai state-linked
companies. Moodyâ€™s based its decision on the assumption that it cannot assume
the government will back the debt of these companies.
In addition to Dubaiâ€™s credit
downgrade, Moodyâ€™s also issued a stern warning that it may cut the U.S. and U.K. credit rating to below
Aaa.They also added, however, that both
of these nations are â€śresilientâ€ť but nonetheless risk an eventual downgrade if
positive steps arenâ€™t taken to shore up debt finances.
Finally, Fitch credit rating services lowered Greeceâ€™s credit
rating because of its huge debt.
This morning the Bank of Canada announced that interest
rates would remain at 0.25 percent until June 2010 and that it was still
concerned about the strength of the currency and its possible negative affect
on exports.This news helped send an
already strong USD CAD sharply higher.
The EUR USD is weakened after breaking the last main bottom
at 1.4801 earlier in the week.The next
downside target is 1.4625.The currency
was hit hard after the Dubai
and Greek credit downgrades. Greeceâ€™s
credit reduction is of particular concern because it could have an affect on
Euro Zone economic activity. An unexpected drop in German industrial production
weighed on this currency before the New
York session even started. Concerns are being raised
regarding the pace of fourth quarter growth in Germany and the Euro Zone.
Currency traders bought the lower yielding Yen on concerns
about holding higher risk assets. This rally occurred despite the approval by
the Japanese government of a new $81 billion stimulus package.Traders did not react to this news because it
was announced last week and was already priced in.
The British Pound accelerated to the downside today on
concerns that credit problems in Dubai would
spread to U.K.
banks.The threat of a rating cut by
Moodyâ€™s further weakened this currency throughout the day.Further complicating the possibility of an economic
recovery is the threat by the U.K.
government to raise taxes and trim spending.
The USD CHF picked up strength all morning as it regained an
old main top at 1.0222.Upside momentum
could drive this market to 1.0337.Swiss
Franc traders are also being influenced by the movement in the gold
market.Weakening gold is pressuring the
Swiss Franc.Gains in the USD CHF could
be limited by a short-covering rally in gold later this afternoon.On December 10th the Swiss National Bank is
expected to leave its benchmark interest rate unchanged and offer clarity as to
its future monetary policy plans.Most
traders expect the SNB to discuss its concerns about deflation and the
possibility of another round of intervention if the Swiss Franc appreciates too
much against the Euro.
Downside momentum triggered by the lack of demand for
lower-yielding assets helped weaken the AUD USD.A break in the stock market will act as a
catalyst to drive this market lower.
Expect the Reserve Bank of New Zealand
to leave interest rates at 2.5% until at least the Third Quarter 2010 when it
makes its monetary policy statement tomorrow. Unemployment and a drop in
exports should help to curtail gains in the economy. Look for more downside
potential as long as investors remain averse to risk.
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