Trade Team Update

The only word I can use to describe today's market activity is weird... maybe it's just me but nothing really made a whole of sense today... oil is up, gold is mostly stable, global equities rallied, overnight LIBOR rates eased, money-flows have been light going into Treasuries... add to that Bernanke's idiotic speech and rhetoric and you have all EUR+ factors yet the euro gets hammered by the dollar.

Could it be market participants are starting to think about the fundamentals of Europe now that other sectors of the global markets are showing signs of stability? I think it's too soon to make that call but it's certainly an issue I'm considering.

I think Bernanke was mostly responsible for sending Wall St. up today. These comments are what did it:

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate." And then... "If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers. Such actions might be particularly effective at promoting economic growth and job creation."

Well... more rate cuts, more government bailouts, more debt, more pressure on the deficit, more foreign funding needed, more manipulated growth data, more inflation, and more cheap money. Sounds like a brilliant plan to me. If there was a law against stupidity, Bernanke would be getting a body cavity search right now before being introduced to his cell mate Bubba.

Crude showed some gains today as OPEC continued to put out the production cut rhetoric. I'm sure at their emergency meeting they will all agree to cut crude production by a million or more barrels a day and then pledge to further reductions in the near-term. Beware though... the market could be buying the rumor only to sell the news on this one...

Tomorrow:

Your guess is as good as mine for tomorrow... we have absolutely no euro or dollar data and there are no Fed speeches scheduled between London and NY. We have no bigname Eurozone speakers tomorrow. I think the market will remain disjointed tomorrow.

We do have that big CDS event tomorrow. I cannot even begin to predict how that will go or what affect it may have on the market. My personal feeling is that it's most likely going to be a non-event. Several traders have asked me to explain the CDS (credit default swap) situation.

Lets pretend my home's mortgage was sold to me by Bank of Earth. And lets pretend Bank of Earth sold mortgages to 500 other families in the community. Well, Bank of Earth packages up those mortgages and created a debt instrument, a security, and this security is sold as an investment product, rated as AAA debt, given an attractive yield.

Now lets pretend Bank of Earth sold this mortgage debt product to the Bank of Jupiter. Well, as good investors, these banks want to purchase insurance on the mortgage security. Here's where we run into a problem... Bank of Jupiter is the holder of the mortgage security but because this insurance aspect is unregulated in the open market Bank of Saturn, Bank of Mars, Bank of Venus, and Bank of Mercury buy insurance (CDS) on Bank of Jupiter's mortgage security.

I think you can see the issue there... again, I'm not sure how tomorrow's CDS event will affect the markets but be prepared for some shenanigans just in case.

EUR/USD:

At this early point in the week I still have no bias on the EUR/USD. The way the euro behaved was not orderly or proper based on how the market correlated variables were behaving today. I have an extremely low risk appetite for the market right now. The liquidity is almost non-existent and the market's overall appetite for risk seems muted.

As far as trading goes, I did buy at 1.3307 this morning but the euro just seems stalled right now and is looking to make another run at the 1.3280 level. There will be stops sitting around the 1.3260 and 1.3220-1.3200 levels. It's possible we may see Asia take a run at the stops... I'm open to this possibility playing out. The afternoon euro range has been extremely tight and we've been failing around the 1.3335 level as of the writing of this update.

Based on what I saw the euro do today I cannot even say with a high degree of probability that lower LIBOR, higher equities, and supported commodities are going to help the euro this week. It's still early, however, and we may get a better idea when London opens on Tuesday whether or not we'll have another disjointed market on Tuesday.

I have to mention that the third week in October, during the past two years, has marked the beginning of a euro bull run against the dollar. It happened last year between Halloween and Thanksgiving and it happened the year before that. Will these past price action patterns emerge and play out yet again?

I can't say for sure but part of my trade plan absolutely involves buying the euro on these dips like we took today. If we make a 200+ point drop, I'm buying the euro. I will take risk buying the dips in the event the market does what it has done in the past. If we do make a bull run back to the 1.3800 level or better, I certainly do not want to be stuck short down here at these levels.

I wish I had some really exciting crap to say about the euro but I really have nothing else at this point in the week. Risk management is imperative, especially between 1700 EST and 1900 EST today... the liquidity will be eerily low.

Be smart with your risk and money.