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Will 'This' Be The Issue of 2010?

Sovereign debt issues around Spain, Greece and other countries is greatly complicating stock market trading as we approach the end of the year.

That's because it's complicating trading around the dollar and the risk trade (short dollar/long commodities/long emerging markets).

As the dollar has been moving up the last few days, commodities are off, and commodity stocks have taken a turn down.

Simply put, if sovereign debt risk becomes THE issue of the early part of 2010, the dollar is likely to strengthen on a longer-term basis, which goes against the prevalent theory that the dollar will remain weak through much of 2010--UNTIL THE MARKET GETS A CLEAR SIGNAL THE FED WILL BE TIGHTENING.

This camp believes that this dollar strength is a brief blip up in ongoing dollar weakness that will continue well into next year.

RBX FX Strategist Alan Ruskin expressed this view perfectly in a note to clients today: "I expect we have seen a pause in the USD's weakness for 2009, but not a definitive turn for 2010, that is unlikely to occur so far ahead of Fed tightening."

Adding weight to this argument: GDP in Japan much weaker than expected, and evidence that deflation is more of a risk, argues that global rates will remain low.

Right now, the main bet is that rates will stay stationary in 2010, but that sovereign debt issues may cause brief blips up in the dollar.

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