Thursday’s Futures Outlook: Lower Interest Rates Are Encouraging Global Investors To Sell The US Dollar

The U.S. Dollar is trading lower against most major currencies overnight as investor demand for higher yields continues to drive up risky assets. This month investors have been more willing to sell the Dollar and buy stocks and commodities on expectations of a global economic recovery.  Furthermore, investors are more confident that central banks will keep interest rates low and plenty of cash in the markets.

Today’s key U.S. economic reports which should have an influence on the Dollar include building permits, housing starts, initial job claims and the Philadelphia Federal Reserve. Investors will be looking for evidence to back Fed Chairman Bernanke’s claims earlier this week that the recession was likely over.

The December Euro is expected to open better today. Although the U.S. economy appears to be leading the global economy out of the recession, investors have been seeking the higher yields in the Euro. Technically, this market has reached a critical balance point at 1.4686 to 1.4691. A breakout over this area could accelerate the market to the upside. A failure to hold this level will indicate impending weakness.

The December British Pound remains one of the weakest currencies because of the floundering economy. Yesterday it was announced that unemployment was worse than forecast. Today traders could be looking at a weaker than expected August Retail Sales and September CBI Industrial trends survey. Bad news from these two reports will encourage more selling of the British Pound.

The long-term monthly chart indicates a main range of 2.0679 to 1.3486. This chart also indicates the British Pound is struggling at the major 50% level at 1.7083.

The December Japanese Yen received a boost overnight when the Bank of Japan left interest rates at 0.1% and announced that a strong Yen may drive prices down in the short-run but could support the economy over the long-run. Traders have been hesitant to push the Yen higher at current levels out fear of a verbal intervention by the BoJ. In the recent past the BoJ has expressed concerns that a high priced Yen could curtail export demand and the economic recovery.

The monthly Yen chart indicates this currency is in a strong uptrend. This market has been working higher inside of an uptrending channel in addition to regaining a key retracement area at 1.0714 to 1.0908. The chart indicates higher prices are likely.

Higher equity and oil prices are needed to keep the December Canadian Dollar on pace for higher prices. The monthly main range is 1.1027 to .7673. This market took an important step toward breaking out to the upside by regaining a key retracement zone at .9350 to .9746. Although the Bank of Canada has expressed concerns about the rapid rise in the Canadian Dollar and its potential negative effect on the economy, demand for higher yielding assets is likely to overtake these concerns to drive prices higher.

The Swiss National Bank is expected to leave interest rates at low levels at its next meeting. In addition, it should announce that the economy has turned the corner and is beginning to mount a recovery. Investors also suspect that the SNB will report that it will periodically intervene if necessary to keep the Swiss France weaker against the Euro. Technically, this market is in a strong uptrend after regaining a key retracement level at .9621.

Lower interest rates are encouraging global investors to sell the Dollar to fund their investments in higher yielding assets. This trend is likely to continue as long the Fed is committed to keeping interest rates low.

U.S. equity markets are called higher based on strong overnight buying in Europe and Asia. The cheaper Dollar continues to be the driving force behind the strong rise in prices. Traders should continue to aggressively buy stocks as the global economy improves and as long as central banks continue to keep interest rates low and stimulus money flowing.

The current rise in stock prices seems to indicate that mutual fund managers may be chasing the markets at current levels. This could prove dangerous at some time in the future if they all head for the exit or decide to take profits at the same time. The trend is definitely up and it looks as if investors will escape September without any substantial decline as the historical charts had suggested. The key time period will be the next earnings report season in October. Companies will have to be able to back these strong price gains with solid earnings. Increased revenues will be the key factor money managers will be looking at.

December Gold is a tricky market. Despite the recent surge to the upside because of the weaker Dollar, it doesn’t seem investors want to chase this market higher at current levels. This leaves it susceptible to short-term corrections. Rather than spiking to the upside, this market would be better served if it showed a pattern like the stock market. The best formation would be a slow and steady rally where investors support the market on dips. Spike moves in gold tend to lead to big corrections.

December crude oil continues to have trouble near the $75.00 area. Despite low inventory figures, this market has not been able to clear out of its recent narrow range. It looks as if investors are waiting for more solid evidence that the economy has turned before committing to the long side in a big way.

Earlier in the week, the November Soybean and December Corn markets surged to the upside on rumors that an early frost could hurt some of the late planted crops. Although the market has sold off the past two days since the run-up, this possibility is still out there. If speculators truly believe in the early frost rumor then they will be looking for a place to buy on this current dip. If this story goes away then the down trend should resume but losses may be limited because of new demand triggered by the weaker Dollar.

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