China's central bank recently made a hugely important announcement.

Very few mainstream media outlets are even mentioning this story, but China just put a somewhat significant nail in the coffin of the U.S. dollar's status as reserve currency.

Currently, most contracts are settled in dollars. So if Great Britain wants to buy oil from Saudi Arabia, they must first buy dollars.

But China's central bank just began to allow certain cross-border trades to be settled in the Chinese yuan.

In the solitary Reuters story on the subject one sentence sticks out as especially foreboding for the dollar:

Once again, China has raised reserve requirements for banks to slow down lending and, hopefully, slow inflation, too. China reports that inflation accelerated to 4.9% in January. Part of the reason is that drought has damaged China's grain production and food prices are up.

Chinese banks lent $158 billion in January. That was more than double the rate of lending in December. Apparently, lending typically surges in the early months of the year in China.

The word "inflation" is appearing in the headlines more and more. For emerging markets, inflation is getting a bit scary. China is expected to show 5% inflation for the first two months of the year. That's clearly a big problem for China. And the situation is similar in other emerging economies, like Brazil and India.

Each of these three countries has raised interest rates to fight inflation. They will certainly have to do more. Especially China. China's currency is undervalued, kept that way by an artificially imposed exchange value known as a "peg." China pegs its yuan to the U.S. dollar.

I am very curious to see how investors will react to the possibility that QE2 may be ending. The policy is set to conclude in June, anyway. And I would suspect that the Fed will continue until then, regardless of growth.

We got the latest non-farm payroll numbers this morning. And frankly, the numbers raise more questions than they answer.

After the ADP private payroll showed 187,000 jobs added to payrolls. The government number came in at a measly 36,000. But amazingly, the unemployment rate dropped to 9%.

I've been warning that a correction was coming for stock prices for a few weeks now. And no, I'm not trying to point out that I have any unique insight on this. It's just that when the stock market advances in a virtually straight line for 4 months, you start to think investors and traders will take some profits at some point.

Corrections are inevitable and healthy for stock prices, like a forest fire that clears out underbrush and old growth and let's new growth occur. OK, that may be a little dramatic, but you get the point.

Chinese President Hu Jintao meets with President Obama today in Washington DC.

The two presidents are supposed to have a private lunch and then discuss a variety of topics including trade, military, North Korea, Iran, human rights, the dollar, the yuan and the weather, no doubt.

As the east coast is being hammered with a wintry mix of sleet, freezing rain, snow and ice, you might expect the topic of coal to come up.

After all, a majority of electricity in the United States and China is provided by coal. And for the past few years, China has started to import coal - mostly from Australia.

As a result, China’s domestic coal companies are practically minting money. They can’t produce coal fast enough, because no matter how much coal they bring to market, there’s a near-guarantee that they’ll be able to sell it for top dollar.

They don’t have to worry about anything except for increasing production.

And now, with floods in Australia, the amount of coal being shipped to China has decreased substantially.

So how do we view a stock market that can’t hold its early highs, sells off to slightly negative territory mid-day, and then recovers roughly 50% of the decline by the close? Is that bullish behavior? Is it bearish? Or is it just plain weird?

While there’s certainly no shortage of weird out there – like the 7% rally for Lennar (NYSE: LEN) today when housing data appears to be getting worse – we have no choice but to see yesterday’s action as bullish. After all, the major indices finished in the green.

Today there are two huge trends that are about to benefit one small sector more than any other.

First I’ll tell you the trends so you can connect the dots - and I’ll give you one way to invest.

The first trend is somewhat well-known. It goes like this: when interest rates in the United States begin to rise, the Japanese stock market tends to outperform.

You can see this trend in action in the somewhat complicated table below:

So if the U.S. dollar is weak, it’s usually a good idea to see what else is going on in the world, rather than assume the dollar is trading on U.S. data alone.

It's Veteran's Day, I'm taking a moment to recognize the sacrifice and dedication of our military.

The bond markets are closed today, so we're losing an important catalyst for the stock market. Without the running gauge for the U.S. dollar, traders will have to depend on recent news to drive the action today. And that may not be a good thing...

Cisco (Nasdaq:CSCO) is down huge after its earnings report last night. The company beat earnings by a couple pennies, but offered guidance that was well below expectations.

Stocks pushed higher again on Friday. The Dow Industrials broke above 11,000 and the S&P 500 moved closer to TradeMaster Jason Cimpl's target set five weeks ago of 1,172.

Still, these indices are below their 52-week highs of 11,309 and 1,219, respectively. That was back in April, after the European debt problems prompted a massive lending program form the EU and 1Q earnings came in very strong.

I'm still miffed at Fed Chief Ben Bernanke for not speaking with confidence about the U.S. economy. For a group to succeed, it must have confidence that it can succeed.

Generals know this. Coaches know this. But for some reason, Ben Bernanke just can't bring himself to give the economy a vote of confidence.

But perhaps he's competing with the Bank of Japan and China's government in the great race to the bottom for currency valuations.

Resources need to be produced by the sweat and sometimes blood of someone's brow, whereas world currencies, for the most part, are based on nothing but a government's ability to print them. Ben Bernanke doesn't shed a single drop of sweat, and certainly no blood, when he prints another $1 trillion into existence. And you can bet he doesn't shed a tear for those folks unfortunate enough to hold dollars when he turns on the printing press.

So I'm somewhat loathe to discuss currencies - but they do have a real effect on the price of resources - so I must.

And to prod me along, I received a very relevant and tough question yesterday after my long-winded self congratulatory issue on my correct natural gas call.

Few numbers have been released with as much fanfare and anticipation as last Friday’s Nonfarm Payrolls number. Is it any wonder that the number was pretty good? Are we surprised that economists across the board are hailing the addition of 162,000 jobs in March as definitive evidence that the economic recovery is picking up steam? 

Employment increased at the fastest rate since March 2007. And it wasn’t all Census workers, either. Government hiring accounted for 39,000 workers. That means private companies hired 123,000 people. 

Employment numbers will continue to look good, as Census hiring will continue into June. But we’re going to need to see continued solid growth from private sector employment.

The S&P 500 moved back down for retest of 1,165 support/resistance point yesterday. That important level held, but it’s interesting to see what lead to the retest.   

Basically, yesterday’s decline was the result of currency values. The U.S. dollar rose against the euro as more signs of dissension in the European Union add uncertainty to the future of the euro.  

The root cause of the dissension, the ongoing debt issues in Greece and now in Portugal, is somewhat irrelevant. Greece will get the bailout loans it needs. And whether they come cheaply from the IMF or a bit more expensive from the EU central bank, they will come.   

The overriding issue is that Germany is demanding IMF involvement. Other European countries see this as an internal matter for the EU to solve. From that perspective, we can see the Greek debt solution as a chance for the EU to demonstrate its cohesion.  

And Germany is throwing a monkey wrench into the whole thing. 

Today is March options expiration, so don’t expect a lot of action. Options expiration days (the third Friday of the month) tend to be pretty dull.  

Still, it’s been a pretty good week for stocks. The S&P 500 moved up through two important resistance points – 1,150 and 1,165. 1,165 is a post-crisis high. And if you check a chart, you have to go back to late-2005 to find the next resistance point at 1,200. (The S&P 500 attempted to find support at 1,200 during the crash in 2008, but I don’t see that as particularly significant – investors were literally grasping at straws then.)  

Ironically, individual investors aren’t on board. Total inflows into diversified equity funds for U.S. stocks were negative in February. Bond funds and foreign funds showed gains.  

Also, ETFs had a positive inflow of $5 billion. That suggests that investors may be taking matters into their own hands and opting for a lower cost investment vehicle. 

The S&P 500 is trying to push past a key resistance point at 1165. The Consumer Price Index was unchanged for February. The lack of pricing pressure supports the Fed’s monetary stance. As the Nomura Securities chief economist David Resler told Bloomberg, “Inflation is certainly no imminent threat to the U.S. economy…We see the Fed on hold through this year.”   

Resler’s expectation for interest rates is a bit of a departure. Most economists think rates will rise later in the year. But any interest rate hikes will be dependent on jobs growth. Unemployment claims fell by 5,000 last week. That’s an improvement, but we still need to see payrolls increases. We won’t get that number for a couple of weeks.   

The dollar is stronger against the euro today as the bailout plan for Greece takes another turn. An agreement seemed to have been made a couple days ago. Greece was even taken of credit watch by ratings agencies.