US Dollar at slower pace against shining commodities

Thursday, December 11, 2008

Week Dollar

The USD was weaker again overnight as the fate of the auto-bailout package suddenly became less certain. The $14 billion dollar aid package was passed in the House, but it is unclear whether the Senate will be able to muster a majority vote and at least one Republican Senator was threatening a passage-blocking filibuster attempt. From our view, the package doesn't really look at the real long-term problem at hand: the legacy costs that will always weigh on the US automakers relative to their foreign competitors. The so-called prepackaged bankruptcy options seemed better and far less intrusive than the current plan. The plan's idea of appointing a "car czar" and taking partial government ownership smacks of dirigisme and might only make things worse in the long run.

Commodities were higher

We're not sure why the market is getting so upset about the auto-bailout package, but clearly it is clouding the market's view on the USD right now and could continue to do so in the days to come until the issue is resolved. Other factors were also important in the move weaker for the USD yesterday. Commodities jumped higher yesterday, with gold especially on the move as it sliced through key resistance around the 800 dollar/oz. level and looks ready for more. A bit surprisingly, relative to recent patterns, the weakness in equities in the US Session failed to provide convincing support, so this divergence, in addition to technical breaks in places overnight, raises the probability that the USD sell-off may gain further legs in the short term - see more on this below.

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