Arrivederci Euro, Forte Dollaro U.S.

As they say in Italian, “Arrivederci Euro, Forte Dollaro US,” or “goodbye Euro value, the U.S. dollar is strong.” Political unrest in Italy has put tremendous pressure on the euro zone, with the euro-dollar selling off dramatically today against the U.S. dollar.

As reported by CNBC, “Over the weekend, Italy's prime minister appointed former International Monetary Fund official Carlo Cottarelli as interim prime minister to form a new cabinet and restore political order within the country.

The euro zone's third-largest economy has been struggling to establish a stable government since inconclusive elections in March, with anti-establishment forces abandoning their effort to form a ruling coalition over the weekend.”

Currently, Italy carries a €2.3 trillion-dollar debt. Although most analysts believe that a default on this debt is extremely unlikely, it is the repercussions should the unthinkable actualize that has raised concerns. If Italy did in fact default on its debt, it would threaten to collapse the Italian economy and have widespread repercussions concerning the viability of the euro zone itself.

The U.S. dollar index has gained almost ¾ of a percent in value today and is currently trading at 94.80. Although the dollar index is a basket of foreign currencies, the euro-dollar is the dominant currency accounting for 58% of the index. The euro-dollar is currently trading at 1.153, down over three-quarters of a percent on the day.

This, of course, has put pressure on gold pricing which in and of itself is priced higher today, however significantly tempered by dollar strength.

As of 10:30 PM Eastern standard time, spot gold is currently up $1.80 and fixed at $1,299 per ounce. On closer inspection, a strengthening U.S. dollar is taking away $6.00 in value, with normal trading bidding up the precious yellow metal by $7.80 today, according to the Kitco Gold Index (KGX).

These concerns have also spilled over into U.S. equities with the Dow Jones Industrial Average dropping almost 400 points in trading today. This dramatic decline in the United States was led by banking stocks reacting to the recent events in the euro zone.

Wishing you as always, good trading,