By Gareth Soloway on October 19th, 2010 11:34am Eastern Time
China struck back today, raising interest rates in a surprise action that shocked the world. The real reason behind this was most likely to strike back and the United States officials like Tim Geithner who have been calling more harshly than ever for China to let their currency float against the U.S Dollar. Treasury Secretary Tim Geithner has been calling China a major currency manipulator. This move by China smacked the Federal Reserve and Government policy of a weak U.S. Dollar right in the face. The Dollar soared today on the back of this China move. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) jumped dramatically today, trading at $22.64, +0.32 (+1.43%).
The big question must be asked. Who is really manipulating their currency? Yes, China ties their currency to the U.S. Dollar to artificially keep it low. However, the policy of the Federal Reserve is to drop the Dollar dramatically, printing money by the trillions and creating a false wealth effect. In reality, it can be argued that the United States is as big a manipulator of its own currency as China. This action by China was a clear shot across the bow of the United States ship. Essentially telling the U.S to back off and watch themselves while proclaiming themselves a big mega power like the U.S.
The SPDR S&P 500 ETF (NYSE:SPY) are trading at $117.38, -1.16 (-0.98%). The Dollars dramatic rise is the only reason the markets are lower. Many in the media will point to International Business Machines Corp. (NYSE:IBM) and Apple Inc. (NASDAQ:AAPL) earnings which were not quite as good as Wall Street had hoped. However, if you look at the futures overnight, they were trading positive, setting up for a flat to slightly higher day on Wall Street until China raised interest rates. The markets are purely a play on the currency right now. The Federal Reserve pushes the Dollar down to keep the markets up but cannot compete with China, at least not today. To gain more guidance, analysis, swing trades and education, join the Research Center.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
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