Currencies

Shrugging off some lingering reminders of the credit crisis and recession, investors last week marked the one-year anniversary of the bear market low by pushing many benchmark equity indices to cycle highs.

China’s consumer-price index spiked higher in February, leading to speculation that its central bank will raise interest rates to curb economic growth. The inflation report showed an acceleration from the year-earlier month, to a greater-than-expected pace of 2.7%. The higher growth was tied to greater-than-expected gains in fixed-asset investment, bank lending, and industrial production.

As investors vacillated about the impact of developments in Greece, together with the uncertainty of strong fourth-quarter economic data possibly not carrying over to the first quarter, stock markets experienced two sharp sell-offs and two rebound rallies, limping to small gains on Friday but ending the week modestly down.

All major currencies are down versus the U.S. Dollar overnight after the European Union failed to deliver a resolution to the Greece sovereign debt problem. Yesterday, currencies led by a rally in the Euro, pressured the Dollar on hopes that the EU and Greece would reach an agreement regarding loan guarantees to ensure Greece would not default on its sovereign debt.

The U.S. Dollar is trading mixed against most major currencies after a volatile, two-sided overnight trade. Thinning trading conditions and position squaring ahead of this Friday’s U.S. Non-Farm Payrolls Report is having an influence on this week’s trading action.

Back from the festive season break, traders pushed stock market indices to new highs for the rally, logging a full house of five up-days for the S&P 500 Index and pushing the CBOE Volatility (VIX) Index down to levels last seen pre-Lehman in 2008.

The U.S. Dollar fell to a 15 month low against a basket of currencies on Tuesday as concerns about debt issues in Dubai subsided, leading to increased demand for higher yielding currencies. Further weakness in the Dollar was attributed to a report that Chinese manufacturing increased at its fastest pace in five years.

After reaching a 15 month low early in the week, the U.S. Dollar closed higher for the week against a trade-weighted basket of currencies. Technically, this closing price reversal, once confirmed, often leads to a 2 to 3 week retracement. The daily chart suggests that a move through 77.50 is necessary to turn the main trend to up.

If you bought gold when we first recommended it, ten years ago, you are in a very comfortable position. Gold sells for more than 4 times as much today. But what should you do now? And what if you didn’t go for broke on gold in the early ’00s? Is it too late to get in on the bull market?

Yesterday the Federal Reserve laid out the groundwork for another 30 days of increased demand for higher yielding assets by remaining committed to low interest rates for an “extended period” of time. Traders reacted on Wednesday as if this news was already in the market.

Weakness in the AUD USD is dragging higher yielding currencies lower overnight. This is leading to the call for a stronger U.S. Dollar on the opening. Investors are becoming more risk averse ahead of three major central bank meetings this week. On November 4th the U.S. Federal Reserve holds its FOMC meeting.

The U.S. Dollar is losing ground against most major currencies this morning as traders adjust positions following last week’s shift in sentiment out of higher yielding assets and this week’s slew of key economic reports and central bank meetings.

The U.S. Dollar Index reached its lowest level in two weeks overnight. Increased appetite for risk is helping to put downside pressure on the Dollar versus a basket of currencies.

The U.S. Dollar closed lower against a basket of currencies as appetite for risk drove traders away from the lower yielding Dollar into the higher risk currencies.

The U.S. Dollar is down substantially across the board as an International Monetary Fund Report encouraged traders to lighten up their recent long positions. Since late last week the U.S. Dollar has been gaining ground versus most major currencies as investors remained skeptical that the global economy was on track for a recovery.