The Dollar Pops While Gold Wilts And Equities Gain Traction

The U.S. dollar popped up strong and proud today beating back gold traders who tried in regular trading to move the yellow precious metal off its current down trend.

The strong greenback is responsible in late afternoon trading for a $12.60 loss on the day that was countered by a regular-trading rise of $4.60, giving a net of minus $8.80. The dollar is up about 1.50% against the euro and 0.60% against the British pound. It is probably more appropriate to say that the euro weakened rather than saying the dollar rose. The net results are the same, of course.

Bullish euro currency traders were caught holding the bag this morning, as the devil appeared in the details of the debt-restructuring proposal by Greece. The sticking point is: What is to be done about pensions? The Greeks don’t want a gray revolution on their hands, and since their economy is a shambles, they can’t dump the funding of those pensions onto their country’s youth who have a very high unemployment rate.

That pushed some U.S. bond yields up. More importantly, it gave investors a reason to believe in U.S. paper. That is so despite a weak 2-year bond sale. That, however, may be due to sidelining – bond buyers waiting for a better deal when the Fed finally raises interest rates.

Around the world, equities were up, although in New York, the three major exchanges were just barely above yesterday’s close.

As we predicted, the Shanghai experienced more volatility today, this time to the upside. Some traders were buying the dip in China of the last few days. Europe was also up, having not quite digested the rumble strip the union was driving over concerning the woes of Greece.

Crude oil rallied on punched up market action due to a sharp rise in gasoline futures, up around 3%, and on worries about oil inventories worldwide. West Texas Intermediate was up around 1% while Brent North Sea rose almost 2%. We expect U.S. inventories of crude to decline again this week in the vicinity of 500,00 barrels less.

A strong dollar, which acts to depress dollar-denominated oil/energy pricing could not stop the crude rally.

Strong and weak economic news continues to come out of the U.S. economy. Strong housing sales data was followed by weaker-than-expected durable goods orders. However, very strong business investment was seen and investors had their eye on that most of all. It’s a predictor of things to come.

The S&P 500 keeps testing its current resistance. We will see a resolution of that probing any day. It’s too early to put a real bet down, but if forced, we would say the composite is headed higher.

The U.S. economy has entered a phase where good news is good news and bad news is being ignored. There is optimism on Wall Street.

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Wishing you as always, good trading,