Dollar on the Rise

rising dollar deflationAfter several days of rather flat trading, markets finally made a move on Tuesday as the Dow closed down over 100 points. The close marked the biggest down day for markets since the end of November. Trading volume continues to be light, which has a tendency to bring volatility to markets.

Markets continue to act adversely to a rising dollar, which could prove as a rough beginning for 2010 as the dollar definitely has room to run. It's recent demise was mostly due to investors moving into riskier assets, as sentiment was strengthened. However, we are much too early for an inflationary state from our recent government splurge, so a strong dollar should be in the picture for 2010. Also as a result of the strengthening dollar is the dropping of gold. My GDX put options saw some good green today as commodities continued to struggle.

Many companies do not like to see the strengthening dollar as it can put a big burden on export profits. I plan to open up some positions in UUP as I feel the dollar should go for a bit of a run.

The government is looking at a legislative bill to stimulate the employment market that could use up to $200 billion of taxpayer's money. The money would most likely be used for roads, bridges, and infrastructure to help spur some employment. I do not see how better roads and bridges will assist in building up the economy. Sure, it will create jobs for some (for a time), however, the end product will just be a mound of gravel that has no net changing effect. Why not invest in companies who could then build their business, which in turn would allow them to hire more employees. Sometimes I feel that the government just spends money because they can.

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Like I've said before, I am not ruling out the very good possibility of markets taking a turn before the new year. Yes, volume will be light, which could bring some manipulation, but we are finding ourselves at very high support levels. Deflationary levels are still present and with a now rising dollar, these manifests should grow stronger. Happy Trading.


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    The rally in the dollar will not last.