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Asian Slowdown Sparks Dollar Rally

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Fears of Asian governments putting the brakes on their economies to ward off inflation hit markets today driving equities lower and the dollar higher against the major currencies, especially the euro. Commodities also suffered a tough trading day falling sharply.

The greenback was stronger today as traders preferred the dollar versus the other major currencies while selling equities at the same time. The Dow Jones Industrial Average fell the most in a month as the index briefly traded below the 11000 level. The Dow finished the day lower by 1.65%.

The cause of the drop in equities is due to fears of the Chinese government taking moves to slow the growth rate in the world's hottest economy and to stem rising inflation. South Korea also raised its benchmark interest rate 25 basis points.

The Federal Reserve has come under heavy scrutiny from both the private sector and those in the US government for the Fed's quantitative easing program. This leads some economists to predict a scale back of the Fed's quantitative easing program. However, today US PPI for the previous month rose by 0.4% on expectations of a rise of 0.9%. This underscores just how close the US economy is from a state of deflation.

Following the Chinese slowdown fears and criticism of the Fed, the dollar put in a strong trading day against the majors today. The EUR/USD broke below the psychological 1.3500 level and traded as low as 1.3460, a level that coincides with the 50% Fibonacci retracement level from the September low to the November high.

The GBP/USD traded as low as 1.5840 where the pair found support from a short term trend line that extends higher from the mid-September and October lows.

The USD/CHF is pressing the 0.9970 level, the height from the previous bullish correction in October.

Gold and spot crude oil are also down sharply with spot gold falling to $1,330 and spot crude oil lower at $82.60. Spot crude oil found support at a previous channel line running down from the October highs.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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