surged to multi-month highs amidst sharp losses in the Dow Jones Industrial Average and other key asset classes, setting the stage for continued strength. The Dow Jones FXCM Dollar Index easily broke psychologically significant resistance at the 10,000 mark and currently boasts its strongest 20-day appreciation since the height of the financial crisis in 2008. Momentum clearly favors the topside, but traders should be careful of sharp corrections ahead of what promises to be a critical week for the US Dollar and broader financial markets.
End-of-week US Nonfarm Payrolls data headlines foreseeable event risk for the world’s largest economy, but traders should be equally mindful of any surprises out of a European finance ministers meeting on Wednesday. Euro Zone tensions hit fever pitch this week as a failed German bond auction exacerbated sell-offs in Spanish and Italian bonds. Italy paid a whopping 7.81 percent for 2-year bonds in its most recent auction—up substantially from the 4.63 percent seen last month. Standard and Poor’s poured salt in the Euro Zone’s wounds as it downgraded Belgium’s sovereign credit rating for the first time since 1997. The doom and gloom in Europe was enough to push the US Dollar to significant highs, but the focus on Europe ignores key fundamental risks in the US economy.
US Treasury Bonds rallied despite news that the so-called Super Committee failed to agree upon fresh budget cuts ahead of its self-prescribed deadline. The lack of action from the group of legislators underlines the political acrimony in the current government and growing credit risk for the US Treasury. Global investors continue to flock to the relative
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