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What way will the market go?

                The dollar is at historically low values, interest rates at historically low values, gold over 1,000 USD per ounce, stock market at a historical 6 month Bull Run, optimism at 1 year high and corporate books cooked more than ever.  All these facts need to be considered when estimating where the market is heading.   But nothing affects equity prices more than the change in value of the dollar in respect to other global currencies.

The dollar can drop at most another 7% before raising some serious concerns about currency stability.  At this USD level we can see the DJI at 9,800 easy, but the 10,000 market will be hard to break if the unemployment number doesn’t change fast.  Pressure is mounting overseas as some countries start to feel the need to raise interest rates.  This will further push a devaluation of the dollar and cause real inflation in the US.  Commodity prices will in particularly get a lift from a weakening USD.

The reality is however that as long as the global reserve currency is the dollar and commodities are priced in dollars, the US has nothing to worry about.  As the emerging markets recover and their demand for commodities grow, so well the need to buy and hold USD.  We do however recommend all global investors to keep an eye on talks of alternate to dollar as reserve currency, commodities traded outside the USD and bank holiday talks.

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