While investors have been focused on the S&P 500 and its attempt to break through its 50-day moving average, the Dollar had no problems breaking through its 50-day. Unfortunately, the break was to the downside. With a decline of 1.5% today, the US Dollar index traded below its 50-day moving average for the first time since late July. At the same time the Dollar has been falling, the Euro has been rallying, as it broke above its 50-day moving average for the first time in months. Was the negative yield on the three month T-Bill a wake up call to foreign investors that holding cash in Dollars is not a very attractive option?
Not surprisingly, Gold is benefiting from the Dollar's weakness with a gain of 3% today. A look at this chart shows that the commodity is still nowhere near breaking its downtrend. However, it is currently trading right at a short-term resistance level of around $830. How it acts in the weeks and months ahead will be a good indication of how concerned the market is regarding inflation.
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Oddly, too, while the dollar since July was rising, the stock market was cratering (both consequences of a capital-starved, dollar-denominated credit system).
So, what now? Well, maybe Paulson and Kashkari aren't lying. Maybe the financial system has been stabilized, if only momentarily. Maybe the rush into Treasuries is but an indication the spigot was opened just a wee bit too much. Maybe a return to some semblance of the status quo is imminent, and in the wings awaits the return of animal spirits...
Posted by: Tom Chechatka | December 12, 2008 at 02:31 AM