The Sky is Falling

Well now that the “rescue package” has been signed into law, we will see how markets react to this package. We are already seeing sharp falls in international stock markets early this morning here in the states. Clearly the markets still lacks any sense of confidence and until we regain some reasonable level of confidence, we will trade as if the sky is falling.

The Dollar continues to get a counter intuitive bid. We still see the longer term prospects of the Dollar as bearish. This “bailout” will cost in excess of 2 Trillion Dollars by the time it is said and done and the only way we can get those funds is by printing them. So while the uptrend in the Dollar is your friend, keep one finger on the trigger as when it turns we expect the fall to be even more dramatic than the rise.
Euro, Pound, Swiss Franc
This market continues to break through any and all support levels as it gets dragged down with global stock markets. You may have noticed that in recent weeks this pair has linked up with global stock markets. At least on one side, this pair has been highly correlated with the S&P when stocks are falling but that correlation tends to “loosen” when stocks rally. We continue to expect a turn back up but at this time fear is the trade of the day.
This pair also continues to free fall through any and all support levels. We are looking for this pair to stabilize and hold support above 1.70 this week. We are buyers of dips as looking ahead we see dark clouds on the horizon for the Dollar.
This pair has not seen the magnitude of movement that its cousin the Euro has. That being said, we expect the opposite to be true when we begin to move in the other direction. What I mean is, when the Dollar falls, it will fall more against the Swissy relative to the Euro. So bottom line for us is to sell into rallies this week. We expect to see this pair trading back near parity by the end of Q1 2009.
Yen, Australian Dollar
This pair has seen a large unwinding of the now infamous “carry trade”. That has been the “reason” behind why this pair has moved in opposite direction to the other majors. We are buyers of dips in this market as well. All of these trades are “hard” to take due to the huge volatility.
The RBA has begun the global rate cutting party by cutting 1% today. Even in the face of that we are buyers of dips this week. If you recall when the RBA was raising rates last year, we very often recommended selling short after rate hikes and usually did well with them. We are again using that same theory but now on the other side.
North America
This pair has seen incredible strength partly due to falling oil prices and partly due to bad economic numbers coming out of Canada. None the less we are sellers of these rallies as we feel that crude oil will stabilize and begin to rally in the weeks ahead mostly on the back of a falling Dollar.

Odom & Frey Futures & Forex
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