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Stock Markets Collapse As Dollar Soars



June 15, 2011 – Comments (0) | RELATED TICKERS: SPY , FXE , UUP

Greece continues to drag the Euro down. Almost every night there seems to be another dramatic issue bubbling up from the most troubled European country. The CurrencyShares Euro Trust (NYSE:FXE) is getting pounded on the back of these worries, trading at $142.23, -1.69 (-1.17%). As the Euro falls, the Dollar soars. As the Dollar soars, the markets collapse lower. Note how the Dollar bottomed in early May. This was the same time the stock market topped.

While Greece continues to bring down the global markets, it is important to realize that this situation will ultimately end in default. Greece is a patient on life support at this point with no options but to pull the plug. However, just like anything in life, it is not that easy. Right now the European Union is struggling to buy Greece time. Not because they have any chance of not defaulting, but more so because of the contagion fear. The longer they can prolong Greece's default, the more likely Portugal, Spain and Ireland can avoid the same fate.  Should Greece default tomorrow, many of the other countries in the EU would follow within weeks.  Think Lehman, Bear Sterns a couple years ago.

After an early morning attempt at recovery, the markets are hitting new lows of the day.  The SPDR S&P 500 ETF (NYSE:SPY) is now trading at $127.70, -1.63 (-1.26%). This massive late morning dump is a pure result of the Dollar surging higher. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) is trading at $21.52, +0.26 (+1.25%).

The markets are getting slammed from all angles, commodity stocks, technology stocks, transports and banks. The SPY which is the tracking ETF for the S&P 500 just hit its gap fill level from Monday, at $127.70. This should be a short term support level intra day. If that fails to hold, the SPY will trade to its low from last Friday at $127.00.

Gareth Soloway

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