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Wild Ride For U.S. Dollar Index



July 07, 2011 – Comments (0) | RELATED TICKERS: UGA , CLF , USO

This morning, the major stock market indexes are surging higher after a strong ADP payroll report. The European Union is rallying higher this morning as well, however, for a different reason. The European Central Bank(ECB) President Jean Claude Trichet raised interest rates in the European Union by 25 basis points to 1.5 percent. He then went on to say that he will suspend the application of the minimum credit rating to debt instruments by the Portuguese government. Here is another central banker that is changing the rules in the middle of the game. This basically means that the ECB will continue to print money in order to keep Portugal from needing another bailout.

This news has caused the U.S. Dollar Index to trade in an erratic manner. Often, the major stock market indexes will trade inverse to the U.S. Dollar Index. This morning the U.S. Dollar Index futures(DX U1) is trading higher by 0.08 cents to $75.52 per contract. It is important to note that the U.S. Dollar Index traded as high as $75.75 a contract after the ADP job report this morning. A weaker U.S. Dollar Index will generally inflate the stock markets higher.

Oil and most other commodities will be the first vehicles to trade higher from a weak U.S. Dollar Index. Traders should watch stocks such as Cliffs Natural Resources Inc and Chevron Corp.(NYSE:CVX) to trade higher if the U.S. Dollar Index declines further. The United States Oil Fund(NYSE:USO) and the United States Gasoline Funds(NYSE:UGA) should rally higher as well on the back of a weaker U.S. Dollar Index. These same stocks and commodities will come under some selling pressure should the U.S. Dollar Index trade higher at some point throughout the trading session.

Nicholas Santiago

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