Greenback Rolls Over as Contrarians Step Back Into Market (SPY)

July 19, 2012 9:56 AM EDT
Commodity and equity prices are moving higher on Thursday, with gains seen in precious equities, metals, oil, and other commodities. The move higher is tied in part to a decline in the U.S. dollar, which is trading back below 83. The downdraft in the U.S. dollar, if it continues, could point to a reversal in trend toward risk assets and away from safe havens.

The yield on the 10-year bond climbed back above 1.5 percent on Thursday. The up tick in yields comes after a recent push lower toward historic lows. Ongoing difficulties in Europe, weakening growth in China, and fears about corporate earnings in the U.S. dealt a deadly blow to investor confidence last week. As a result, the greenback posted fresh highs at just under 84. But that trend has reversed in the first half of the week, and the U.S. dollar trades back below 83. The move lower in the U.S. dollar is supported by higher yields on the 10-year, which signals selling of safe-havens assets and a potential swap to risk assets.

As investors dig deeper into U.S. earnings, it is becoming increasingly obvious that global investors will be keying off the profitability of U.S companies, and in the end they could be a major relief for equities and other risk assets or completely sink them.

Contrarian investors are shorting the dollar (NYSE: UUP) and bonds (NYSE: TLT) and going long equities (NYSE: SPY) and commodities (NYSE: DBB) (NYSE: USO).

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