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Gold, The Dollar, The Euro And The Big Moussaka

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The euro zoomed up against the U.S. dollar at warp speed today on news that the rest of Europe and Greece would come to some sort of understanding concerning the Greek debt situation. The dollar is on track to experience its single biggest one-day loss since March.

Creditor nations of Greece are close to putting the finishing touches on a draft agreement to present to the Greek government, a source close to the talks revealed today. This hopefully will spur new momentum into the longest-running negotiations known to mankind over a little, profligate country’s spending problems. Such an agreement will release aid for the cash-strapped country. Athens is close to running out of money and has threatened to default on an International Monetary Fund payment this week without a comprehensive agreement.

This is not to say it’s a done deal.

This news was all that the dollar needed for a pullback. It was already softening on weaker economic news out of the U.S. That, in turn, spurred thoughts by analysts that the Federal Reserve would not be raising interest rates until at least later this year, a definite dollar dinger. (Higher rates generally mean a stronger currency.)

The Greek issue, however, is more of a temporal fundamentals circumstance. If the problem is solved on a realistic and long-term basis, Europe will then be naked to the world financial markets again. We will begin to dwell once more on structural problems there that are found immediately beyond the boders of Germany, Belgium and The Netherlands.

We think that, ironically, sweeping out the ashes of the debacle in Greece will ultimately weaken the euro. Of the three major economic areas – North America, Asia and Europe – Europe right now appears to be the weakest. That will be reflected in the common currency. It is the same view that the British have – Europe is hidebound and slow to innovate.

Crude oil, both Brent North Sea and West Texas Intermediate, took the dollar ride today as well, thus staying in tandem with gold, which is acting as an outside market influence. WTI is up almost 2% in afternoon trading, while Brent is up 1%. Natural gas also rose over 1%.

Interestingly, U.S. equities are up, even if only marginally, but the European exchanges are down between a third of a point and almost a full point (DAX). Asia was mixed.

We can deduce from all this is that money is still uncertain as to the direction of the global economy. It trots here. It trots there.

It makes no wonder then that slowly but surely, the yields on the world’s major bonds – U.S., German and Japanese– are slowly rising. The money may not know where it really should go, but it’s got to go somewhere.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer