The weaker Dollar is helping to drive December Gold higher overnight. Since gold is priced in Dollars, the decline in the Dollar is making it more appealing to foreign investors. Keep in mind that the higher this market goes, the wider the ranges. Watch for volatility to continue to expand.
Equity traders will be watching retail stocks today following the U.S. Retail Sales Report. The driving force in this market is still the weaker Dollar. As long as global interest rates remain historically low, look for U.S. equity markets to continue to rise. Economic and earnings reports could help to produce volatile swings in the markets but should not be enough to change the trend to down at this time.
Interest rate futures could see pressure today as Treasury Bonds and Treasury Notes continue to compete with the higher yields being offered by the equity markets. A worse than expected U.S. Retail Report will send a sign that the economy is still under pressure. This could lead to a short-covering rally as traders will read this as a sign the Fed is not likely to raise rates for some time.
December Crude Oil is beginning to show signs of an impending sell-off. Speculators have been supporting this market on dips, but supply/demand pressure has been able to offset this buying. The weaker Dollar and higher equity prices are providing some mild support this morning. Oil prices have diverged from the Dollar which could be a sign that traders are finally owning up to the possibility that a prolonged recession will hurt demand.
The U.S. Dollar is trading mostly weaker this morning following the decision by Asian-Pacific nations to maintain stimulus until the global economy shows “durable” growth. The pledge to continue the commitment toward liquidity has reduced the attraction of holding the U.S. Dollar.
The Asian-Pacific Economic Cooperation members failed to address currency issues but did say that it wants to see nations “refrain from raising new barriers” to investment and trade activity.
While the Asian-Pacific nations were holding back their comments regarding currency valuations, China’s chief banking regulator was criticizing the United States’ loose monetary policy. He said it was encouraging speculation in the Dollar.
The chairman of the China Banking Regulatory Commission said, “The continuous depreciation in the Dollar, and the U.S. government’s indication that, in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive Dollar arbitrage speculation.”
He also added that the U.S. interest rate policy has “ seriously affected global asset prices, fueled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging – market economies.”
The combination of the Asian-Pacific nations and Chinese regulatory banker comments is leading to more weakness in the U.S. Dollar this morning.
Traders are awaiting U.S. retail and business inventory figures this morning. Overnight Japan reported a better-than expected GDP number. This was another sign the economy was pulling out of the recession. The report showed the economy expanded at a 4.8 percent annual pace. This number was well above the 2.9 median guesses and showed the economy was growing at its fastest pace in 2 years.
The December Euro is trading better on the heels of last Friday’s report showing that the Euro Zone was emerging from its recession. Although the economy is improving, don’t expect the European Central bank to raise interest rates soon. Its first step will most likely be gradually ending its stimulus packages.
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