The dollar has been granted another reprieve from its predicted demise. US Treasuries were selling well last week as another flight of capital sent investors to buying the 30 year long bond. A strong dollar and lower commodity prices are definitely linked as the Consumer Price Index (CPI) only went up 2.2% in the last twelve months. Virtually that entire rise was in the cost of oil. As the price of oil has dropped the CPI is moving sideways. The predicted inflationary surge tied to increased US debt has not happened, at least yet. A strong dollar and lower commodity prices looks, to many, to be the order of the day, week, month, and years going forward. Otherwise why would all of those folks be buying 30 year treasuries? For traders in the Forex markets it would seem that, for the time being, good Forex advice is not to short the dollar.

A strong dollar and lower commodity prices will be a boon for US consumers, reducing the cost of their purchases and, maybe leaving room for savings. The prospect of a stronger dollar does not bode especially well for selling US products overseas and could well end up worsening the US balance of payments. It would seem that investing in the US and buying dollars are bad ideas except that both of these seem to beat the alternatives. The Euro is still sliding and China’s interest rate hikes to quell inflation may cause as much as a 40% drop in property values. This could, it would seem, make investment in Chinese real estate and other projects less appealing.  Does that mean the Yuan will become less valuable? Maybe by the time the Chinese decide to let the Yuan float with the market it will not go up but will go down. To some degree it may seem that understanding the Forex markets can get tougher each day. However, the market functions just fine, thank you. It responds to the buying and selling of millions of trades every day reaching a moving price consensus on every currency pair traded.

The point of this is to trade the currency market and not to worry about it. The market will hold up fine even as one currency suffers and another prospers. A stronger dollar and lower commodity prices mean one set of things to US citizens, investors, and those interested in buying US products. It means another set of things to those traders who trade a currency pair that includes the dollar. Whether a trader is Forex trading the Euro or concerned about the Yuan exchange rate versus the dollar it is the market moves and market reaction that is important. The dollar, Euro, Yuan, and the rest will all be at some set of exchange rates next year or decade but they will have to get there and money is to be made in the unevenness of the processes. Knowing where the action is, as in the decline of the Euro, or where it might be, as in the goings on in China and its real estate market will prepare the trader to be in the right place at the right time. Then he or she will need to apply the fundamentals of technical trading to profit from what the market does every day with issues such a stronger dollar and lower commodity prices.

More Resources

• DailyFXTeam: Short term U.S. Treasuries mixed, long term debt gains: 2-year Note to 0.763, 10-year Note to 3.171, 30-year Bond to 4.070.
• Fresh concerns about the health of Europe’s economy leads investors to buy Treasurys
• Market Concerns Push Treasury Bond ETFs Upward | ETF Trends
• Futures Lower Today – Oil Gold Commodity Prices Down In Asia and Europe | Top Feeds News
• Commodity Prices — May 25th 2010 | Commodity Blog
• Japan’s Nikkei 225 Gains as Yen Weakens, Commodity Prices Rise | GoldTradingCalls.com
• Chinas Stock Futures Rise as Euro, Commodity Prices Increase | American Financing Articles
• Singapore Releases April 2010 Consumer Price Index | Gov Monitor
• 68. Trading the News – The Consumer Price Index (CPI) – Cool Great Stuff | Finance
• Sticky-price CPI up slightly in April… Wait, what?