DOLLAR DROPS SHARPLY ON KOREAN DECISION TO DIVERSIFY RESERVES -- GOLD AND OIL ARE STRONG -- SO IS CANADA
EURO AND YEN SURGE AGAINST THE DOLLAR ... The dollar is falling heavily today against most of the world's currency markets. Although the dollar rally had already ended a couple of weeks ago, today's heavy dollar selling came from the Bank of Korea's announcement that it planned to diversify its $200 billion in currency reserves. In other words, sell U.S. dollars and by other currencies. Charts 1 and 2 show the Euro and yen gapping higher this morning -- as the dollar tumbles. The Euro is trading over its 50-day average, while the yen is testing that resistance line. That's giving a big boost to gold and oil, and should continue the recent flow of funds into commodity-based stocks. Expectations for stronger commodities -- and a stronger currency -- are giving Canada a big boost today.
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GOLD AND GOLD STOCKS CLIMB... The dollar plunge is adding $6.00 to the price of gold and is giving a big boost to gold stocks. The Gold ETF (GLD) and the XAU Index are trading at the highest levels in nearly two months. Both are back over their 50-day moving averages as well. Notice the recent upturn in the XAU relative strength line. Energy stocks are benefiting from an .90 cent jump in crude oil which is nearing an upside breakout near $50. At the same time, rate-sensitive stock groups -- financials, utilities, and REITS -- are under pressure today in a continuation of that trend that started late last week. The falling dollar is also giving a boost to foreign markets -- especially Canada.
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CANADA ETF REACHES NEW HIGH ... Canada iShares (EWC) are having a very good chart day. It's breaking through its November high to reach a new multi-year high. Part of that buying is coming from expectations for rising commodity prices since Canada is a big producer of natural resources. Another part is coming from expectations for a stronger Canadian Dollar, which is one of the higher-yielding currencies that -- along with the Australian dollar -- will probably be a beneficiary of Korean bank diversification. As I've written before, there are two side-effects of a falling dollar. One is rising commodity prices and stocks tied to those commodities. Another is money moving to foreign markets. That may explain why many global markets are rising today while the U.S. market has opened weak.
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