Dollar sharply higher

January 5, 2015 09:57 AM
Weekly market analysis

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U.S. economic data is starting to show the "strain" from the global recessionary trend initiated by the "collapse" of crude oil revenue to producing countries, namely Russia and other Middle East countries. The reluctance or actual "defiance" of Saudi Arabia to give in to requests for production cuts by its neighbors and the newly established major producer of the United States has pressured prices for crude and affected the income capabilities of those countries. The United States has emerged as the World’s major producer of crude but various areas have already reduced production capabilities on concern that the low energy prices may exacerbate the already declining global economic situation. 

 

Interest Rates

The March 30-year Treasury bonds closed Friday at 145 18/32nds up 32/32nds or one point as economic news was disappointing. The Institute for Supply Management index of manufacturing declined to 55.5% in December from the November 58.7% and below economic forecasts of 57%. Labor strife at some key West Coast ports as well as decline in U.S. construction spending also factors. Construction spending declined by 0.3% in November against economist expectations of a 0.2% increase. The final reading for the U.S. manufacturing index was 53.9 in December down from 54.8 for November. The lacklustre performance of the U.S. economy as well as the impact from the decline in German bond yields also played a roll in the lower U.S. defacto rates. We continue to see bonds trading in a range currently at the higher end of our projected range. Stay on the sidelines.

 

Stock Indices

The Dow Jones industrials closed at 17,832.99, up 9.92 points ending the three day losing streak. The Dow lost 1.5% for the week. The S&P 500 closed at 2,058.20, up 0.70 points recovering somewhat in the last half hour of trading but for the holiday shortened week lost 1.5%. The tech heavy Nasdaq closed at 4,726.81, down 9.24 points and for the week lost 1.7%. Light trading on Friday after the New Years day offThursday the main factor. We will have to see what the returning traders do on Monday but we maintain our negative stance towards the indices and the overall equity market. We once again implore investors with large equity holdings to either trim the "weak" links in their portfolios or implement risk hedging strategies.

 

Currencies

The U.S. dollar index closed sharply higher at 91.455 on Friday, up 80.8 points or 0.9% with losses posted in all of the others in the group. Losses were 95 points in the Euro closing at $1.2012, 75 points in the Swiss Franc at 99.99c, 44 points in the Japanese yen at 0.08305, 2.47c aty $1.5323 for the British pound 110 points at 8487c for the Canadian dollar and 68 points for the Australian dollar at 80.54c. We continue to favor the dollar not due to any positive attitude for the U.S. economy but relative to the economies of its trading partners globally. Any change in attitude of Saudi Arabia should provide a "psychological" correction for crude but the overall view is negative for now. Stay with the dollar but perhaps taking some profits "off the table" may be appropriate.

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About the Author

John has over 40 years experience at major U.S. Brokerage firms as Manager and Director of various International Divisions and is the founder of his own trading and brokerage firms. Over the years John has gained a wealth of knowledge and experience in all aspects of investments and trading. He was also a floor trader at the Commodity Exchange in New York. He formed Acuvest in 1999 and can be reached at futures@acuvest.com.