The markets continue to focus on the dollar, which having drifted lower for most of the week began to turn around on Friday. In early trading this morning the dollar is continuing higher against most of the majors and it remains to be seen as to how long this counter trend bounce continues for. However, it’s still to early to put much weight on a short term move such as this.
Since commodities are mostly priced in US dollars, any moves in the dollar will be reflected in most commodity price movements. This is why we saw a move lower for many commodities on Friday as the dollar moved higher. We may see further weakness for commodities if the dollar continues to push higher in the short term but this is a double-edged sword, because as soon as the dollar moves lower again commodities will very likely rebound.
It remains to be seen as to how much further impact the prospect (and much expected) second round of quantitative easing from the US government has on the markets and it may be a case of “buy the rumour, sell the fact”, or in the case of the dollar “sell the rumour, buy the fact”.
This week’s financial spread betting update begins with:
Stocks and commodities have continued to press higher overall and the current situation continues to be all about the US dollar. Many markets were higher earlier in the week but some dollar strength of Friday moved a few markets lower. The long term emphasis remains bearish for the reserve currency and although a bounce higher may be on the cards the long term trend is firmly down so any bounce higher may be relatively short lived….