Euro Strength = Equity Strength

When I listen to financial commentators, I sometimes get the impression that the floundering US economic recovery has nothing to do with the issues facing this country (i.e., unemployment, deficits, lack of leadership, etc.). Rather, these commentators are quick to lay the blame on Europe as if the sovereign default risks in that part of the world are the only threat to our economic recovery. If the problems in Europe just go away, everything in the US will be fine. I doubt it is that simple, but then again people like to craft simple explanations to explain this complex beast known as the market. So if we can extrapolate, a rising Euro must mean only thing: a strong Europe. A strong Europe must be good for the US economy because if it wasn't for "them", we would have that economic recovery by now. And an economic recovery that is back on track can only mean one thing: buy stocks. While a cynical view, this is what is working now.

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The Japanese Yen

Several weeks ago reader Fu Manchu politely suggested that "he just didn't see it" with regards to my short Yen position. Several months back, it was looking that I was correct in my "call" that the Yen was going lower, but here we are with risk rising and investors avoiding risk, and well the Yen is rising as it appears the carry trade that funded the risk taking is coming off. Anyway, back to Fu and his suggestion of "Guy, take another look". I have, so thank you for the suggestion, and it just might be time to pull the plug on this trade. Here are my technical thoughts.

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EURUSD: Next Stop 2006 Lows

Well that was quick.

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USDJPY: Follow Up

I have been tracking the USDJPY cross rate for sometime, and it is my belief that US Dollar will move higher relative to the Japanese Yen, and that this will represent a secular trend change.

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TheTechnicalTake: EURUSD

Figure 1 is a weekly chart of the EURUSD cross rate.

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What I Am Watching (Part 2): EURUSD

The EURUSD cross rate has been bouncing around its weekly key pivot point for several weeks now. See figure 1, a weekly chart of the EURUSD.

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EURUSD Cross: Keeping It Simple

Figure 1 is a weekly chart of the EURUSD cross rate.

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USDJPY: It Isn't Correlated

While the excitement of the media has been focused on equities, other corners of the markets go unnoticed. One such asset is the USDJPY cross rate. From my perspective, the USDJPY is on the cusp of a secular trend change.

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Short Yen, Long Dollar

The US Dollar should outperform the Japanese Yen, which is on the cusp of a secular down trend.

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This Correlation Still Exists

As you all know, there has been a tight correlation between the US Dollar Index and equities for the better part of 9 months. If the Dollar goes down, then equities go up. Even if there is a hint that the Dollar might go down - let's say, a bad employment report suggesting that the Fed will keep its foot on the monetary pedal even longer- stocks go up. We all have the drill down. The Fed throws us a biscuit, and we all stand up and bark!

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The Next Big Thing

Let's talk shop.

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Some Unfinished Business

Before I head out for the week, I wanted to update and follow through on several things that I have been discussing on the blog over the past couple of weeks.

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Currency And Country ETF: Japan

Figure 1 is a weekly chart comparing the Currency Shares Japanese Yen (symbol: FXY) to the i-Shares MSCI Japan Index Fund (symbol: EWJ). As you can see, these two instruments are un-correlated across multiple time frames.

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Headwinds Abate Slightly

Last week the price of crude oil lost almost 10% pushing our composite indicator that is constructed from the trends in gold, crude oil and yields on the 10 year Treasury back below the extreme line. See figure 1 a weekly chart of the S&P500 with the indicator in the lower panel.

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Silver v. Currencies

The "everything is up but the Dollar trade" is getting a little bit ridiculous and a little bit frothy.

Figure 1 is a weekly chart of a continuous silver contract. The indicator in the lower panel measures silver's 52 week performance relative to a basket of 8 currencies.Those currencies are: 1) Australian Dollar; 2) Canadian Dollar; 3) Swiss Franc; 4) Eurodollar; 5) British Pound; 6) Singaporean Dollar; 7) Japanese Yen; 8) US Dollar. Relative to these currencies, silver has been outperforming to an extreme degree. Since 2004, such extreme out performance has led to intermediate term highs in silver. Furthermore, silver is at the upper end of a well defined up trend channel.

Figure 1. Silver v. Currencies/ weekly

How do I square this analysis, which suggests froth in metals, with the "breakout" in gold? I don't and I can't. Maybe the move in metals is overdone; maybe it isn't. Trends take time to play out, and prices don't get to their destination all in one day or one week. I don't have an answer. This is why it is called trading as in there are trade offs.