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Both commodities and stocks tanked last week, falling more than 10% from their highs. Financial stocks were also hit hard, as they are large holders of corporate and sovereign debt, whose prices have declined. In regards to commodities, the CRB Commodity lost over 10% in less than three weeks; while Crude Oil, the leader of the pact, gained nearly $2o from its 2010 high of 87.00.

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Even Gold, which rallied on the back of safe haven buying to hit a record high of 1250, was hit hard last week as it stumbled back to the sub-1200 level. Overall, commodity prices will remain under extensive pressure, as excess supply has been dumped into the market at a time when demand has waned.

All of the above has fueled to the Dollar to appreciate against its major currency counterparts as worldwide investors continue to flee to more “risk adverse” currencies.
Up ahead, investors will want to see if the recent drop in stocks and commodities is based solely on profit taking or whether it is the result of a more long term rotation out of riskier assets. This week, the U.S will report its Consumer Confidence, Durable Goods Orders, and Housing figures. If these numbers are better than expected, it will indicate that last week’s selloff was overblown and economic growth is taking place.

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Yesterday, gold continued to prove to be the safe haven for the investors as it traded at the all time high. According to Barclays gold can move as high as $1500.

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The Euro continues to slide against the U.S Dollar, testing the support levels at 1.2600. The imminent resistance can be seen at 1.2660 levels. The market will watch to what degree the Euro Zone and the IMF are committed to solve the debt crisis and if these authorities will be able to increase taxes and cut spending.

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USD
As the end of the year approaches, investors who sold off the Dollar during the year seem to be returning with a fury. The Dollar rose, albeit slightly on Friday, hitting eight month highs against the Euro and capping a good week overall for the USD. Investors who shorted the Dollar earlier in the year and helped it fall for most of it was now buying it back, locking in profits before the new tax year began. The week was highlighted by the Federal Reserve’s promise on Wednesday night to wind down its quantitative easing policy by February of 2010, and while it was far from the interest rate hike investors wanted, it was a sign that things are rebounding and gave traders hope for the New Year.

At the close, the Dollar traded up .11% to the Euro to 1.4335, up .23% against the Japanese Yen to 90.45, up .09% versus the British Pound Sterling to 1.6158, up .08% against the Australian Dollar to .8905 and up .11% to the Kiwi to .7114. The Dollar did fall by .98% to the Canadian Dollar to 1.0665 and .66% versus the Swiss Franc to 1.0424.

EUR/JPY
A massive reversal from an attempt at the lows as the market at first ran stops and then rallied on the Bank of Japan’s new determined deflation-fighting stance. The moves in interest rate spreads do not support the rally – so it will be interesting to see if JPY crosses can continue to rally on JPY-negative sentiment or some inscrutable new theme. In any case, Friday’s candlestick on the daily charts looks like an impressive bullish reversal and draws an emphatic line in the sand on the chart.