The U.S. Dollar is trading slightly better this morning versus most major currencies after the bashing yesterday sent the trade weighted Dollar index to a 15 month low.  Short-term indicators are oversold which could lead to a short-covering rally today.  

Yesterday the Dollar was under pressure because over the weekend the Group of 20 decided not to issue a supportive statement and instead agreed to support continued economic stimulus. This led to a move by investors into riskier assets and away from the U.S. Dollar.  This trend is expected to remain in the market for the foreseeable future as long as U.S. interest rates remain the lowest in the world.  Investors are once again treating the Dollar as the world’s carry currency.

The December Euro stopped short of a new high for the year yesterday.  Despite conditions that warrant a weaker Dollar and stronger Euro, traders may be concerned about possible action to weaken the currency by the European Central Bank if the Euro gets too hot.    

The December British Pound is trading weaker this morning. Investors are concerned about bearish comments from a Fitch Ratings service official in Reuters regarding the U.K.’s credit status. In an interview, Fitch executive David Riley said that the U.K. has the highest risk of major economies of losing its AAA status.  This could lead to increased credit risk and higher borrowing costs.

The Dollar is up this morning versus the December Japanese Yen despite a better than expected rise in Japan’s current-account surplus. The report showed an increase of 0.2% which beat economists’ guesses for a smaller increase.

Weaker crude oil and equity prices are pressuring the December Canadian Dollar after yesterday’s rally produced the largest one day gain in 5 months.  

The stronger Dollar has helped push December Gold back below $1100.00.  Overbought technical factors may also be contributing to the current weakness.  Yesterday’s strong rally in gold coupled with the weaker Dollar was the first sign in a month that gold and Dollar had re-established its “normal” relationship.

U.S. equity markets are under a little pressure overnight due to the stronger Dollar and some light profit-taking.  The Dow hit a new high for the year, but the NASDAQ and S&P 500 failed to reach similar levels.  This divergence may also contribute to today’s weakness.  Throughout the 8 month rally, investors have become accustomed to buying dips rather than strength.  

Weaker equity markets are helping to boost U.S. Treasury futures overnight.  Falling stock prices are increasing demand for fixed income investments.  Yesterday, the Treasury pulled off a successful $40 billion auction of 3-year notes. The cheaper Dollar is giving foreign investors more buying power which is helping to increase demand.

December Crude Oil is trading lower.  The weaker Dollar and stronger equity prices supported crude oil yesterday.  The only concern should be the divergence between the three sectors.  With the Dollar hitting a 15-month low and equity prices nearing their highs for the year, one would have expected a more robust move in December Crude Oil.  

A stronger Dollar and weaker equity markets scenario today could lead to pressure on the energy complex.  News that tropical storm Ida is weakening and no longer posing a threat to oil refineries near Louisiana is also contributing to the weakness as traders are taking out the weather premium.


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