Priced to Destruction



This week we have the markets starting out trying to understand the NFP data. The worst report since 1974 and we rally?! We have all heard the term “priced to perfection”, a time when the market must deliver the best case scenario of any report or it will fall. Well for the last few weeks the market had been going through the inverse which I am calling “priced to destruction”, I am defining it as “a period in time when the market must deliver the absolute worst case scenario on any given report or it will rally”.

So now we appear to be turning a corner here at least in terms of psychology. The idea that the world is ending next Tuesday seems to be ending and calmer heads are beginning to prevail. The Dollar remains a hedge against uncertainty in the credit system but the days of that “hedge” are numbered.
The Credit crisis is still a major problem and one we are not likely to solve anytime soon but the days of the Dollar benefiting from it are quickly coming to an end as more and more people wake up to how we are “solving” this crisis. The “cure” in this case is MUCH MUCH worse than the disease, in time that will be seen by the masses, but I am telling you NOW. Creating more of a fiat currency has ALWAYS resulted in inflation. The more money created the more “hyper” the inflation and we have endeavored to create more money than has ever been done in the history or recorded time. So the writing is on the wall for those not afraid to read it.
Euro, Pound, Swiss Franc
Buying dips these last few weeks has paid off nicely. We are expecting a bit of a pull back in the early part of this week but ultimately we will continue to buy into those dips. I said when this pair was at 1.24 that we would see 1.30 before we saw 1.20 and I stand by that. I will now say we will see 1.35 before 1.25. We are seeing signs of this pair trying to throw off the shackles that are the S&P 500 but we are not seeing a clear “decoupling” yet. But we are on the look out for that to happen over the coming weeks especially once we get into 2009.
Buying dips in this pair has also worked out well. And to make a long story short we expect to continue doing that in the coming weeks. The cable remains much more volatile than “normal” and we expect that volatility to continue.
This pair continues to be slower to turn but it is showing signs of being in the ending phase of the macro rally. We continue to sell rallies and look for much lower prices come 2009.
Yen, Australian Dollar
This pair continues to be at the whim of the stock market. We expect to see this continue for some time. Look for stocks to continue to drift and that lack of directional bias will spill over to the Yen pairs. We expect a very choppy trade at least until next weeks FOMC meeting.
We continue to buy dips here and look for a more macro uptrend in the CRB to support this pair. Near term we see this pair falling under pressure this week but that pressure should create another buying opportunity.
North America
This pair has now created a textbook triple top. For now we expect it to hold and are sellers of rallies. We are forecasting that Oil touches $125 before it touches $25 (yes you read that right) so we expect this pair to begin the grind back to parity come 2009 and beyond.