US Dollar Continues to Plummet

Early on Thursday, the US dollar index continued to trade sharply lower. The dollar index dropped about 0.30% to trade near 80.25. This continues a trend seen in recent days, where the dollar has continued to show weakness as US equity markets have rallied. Bank of America's

earnings were reported in-line with what the Street had been anticipating, while Morgan Stanley's

earnings—although a loss—were better than what was expected. The situation in Europe was little changed, with no major events having taken place. The Italian 10-year—a closely followed indicator in recent months—moved lower as yields fell below 6.4%. The price of oil rallied, moving up just over 1%. The EUR/USD pair moved sharply higher, rallying almost 0.5% to break above $1.29 and approach the key $1.30 level. With the dollar's decline coinciding with the rally in equities, it may be a given that traders are moving out of the dollar as the perceived need for safety declines. The movement in the EUR/USD pair could be attributed to a short-covering rally, as the euro has been heavily shorted in recent weeks. The precious metals continued to show strength against the dollar, although their moves were limited. Will the dollar continue to decline, or is it due for a rally? The biggest factor for traders to watch in this equation may continue to be Europe. The safety trade continues to appear to dominate the dollar's relative value, and so traders running to, or fleeing from the Eurozone may ultimately be the primary factor behind the dollar's movement. Although yields coming down may appear to bode well for Europe's future, the specter of a Greek default lies in the background. Chatter has been floating around concerning whether Greece would be able to avoid bankruptcy. The proposed 50%, voluntary haircut deal was cast into doubt when some private holders resisted. In a voluntary haircut scenario, CDS contracts would not be triggered. Earlier in the week, it was reported that a new deal had been struck and that it was about to be finalized. Yet, that report was cast into doubt later in the week. If the global economic situation is improving, the dollar could continue to move lower from here. Yet, a shock like a default in Greece could jolt the markets and the send dollar soaring.