The firmer dollar this morning is having predictable impact on commodities prices. They are lower across the board but there is no sign of panic at this early juncture. The fear for months has been what would happen to the reflation trade once the bubble burst. The bubble appears to have been pierced on Friday, but so far it has been a slow-bleed for the markets rather than a catastrophic collapse.
I can only guess at the implications: on the one hand, it suggests the markets may not have been as long the carry trade as feared (doubtful). One the other hand, the markets may just be in denial and could start heading for the exits pretty soon if something or someone does not come to their rescue soon.
Bernanke speaks at the Economics Club of Washington early this afternoon. It is hard to imagine him shifting his tone dramatically after one employment report, but given revisions and the positive trend in claims, perhaps he may have some upbeat comments on the economy. IF so, the carry trade could be pressured as traders price in an earlier-than-previously-expected rate move.
