Equity and commodity markets are trading higher because of a weaker Dollar. The U.S. Dollar is down sharply across the board overnight as investors are reacting to yesterday’s U.S. Federal Reserve minutes and comments from the Reserve Bank of Australia.
The Forex markets are having a delayed reaction to the release of yesterday’s Fed minutes which showed the decline in the Dollar was not a major concern. The minutes basically stated the weakness in the Dollar is tolerable as long as it occurs in an orderly fashion.
Comments from the RBA’s Deputy Governor Battellino also drove up demand for risk appetite. In a statement to Australian housing conference attendees he said, “With the economy having only recently entered a new upswing, it is reasonable to assume that we will see this growth extended for a few more years yet”.
This week’s holiday shortened activity has no doubt left Forex traders starving for news so today’s reaction to these two news items may be a little exaggerated. The Fed’s minutes in my opinion offered nothing new. Bernanke basically said the same thing last week but also offered that the decline in the Dollar would not be a factor unless it interfered with the Fed’s mandate to shore up employment and maintain price stability.
U.S. equity markets are trading higher which should lead to a better opening this morning. Demand for risk has returned to the markets, driven by a sharply lower Dollar. Upside momentum indicates that traders should take a shot at the high for the year in the December E-mini S&P 500 at 1112.25.
Treasury futures are trading lower but losses so far have been limited. Yesterday’s 5-Year Note auction was received positively by traders but overnight strength in equities and gold are helping to keep downside pressure on December Treasury Bonds and December Treasury Notes. The decline could increase depending on how high speculators take the equity markets.
The weakness in the Dollar helped drive the December Euro through the old top at 1.5062 to a new high for the year. Traders are now waiting to see if there will be a reaction from the European Central Bank regarding the rise. The ECB may become concerned that the high priced Euro will curtail Euro Zone economic activity.
The December British Pound is up sharply as traders are reacting positively to the upward revision in U.K. 3rd quarter GDP. It was reported overnight that GDP shrank by only 0.3%. The previous estimate was for a fall of 0.4%.
The Dollar also broke parity with the Swiss Franc, rallying above 1.00 to an overnight high of 1.0008. The December Japanese Yen traded up to a new high for the year at 1.1445.
The weaker Dollar helped drive December Gold to a new all-time high at 1183.20. Look for this trend to continue throughout the day as long as selling pressure continues to weigh on the Greenback.
Higher equity markets and the lower Dollar are helping to boost January Crude Oil. Gains could be limited unless speculators jump onboard. Bearish supply/demand issues could be a factor limiting any sizeable advance.
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