Ralph Shell's  Instablog

Yesterday's suggestion that the right approach was to scalp the short side was right on, but it is hard to get very aggressive when the pair has been on a six month run to the upside and is close to the yearly high.  We are now trading at 1.4880, down 1.60 point  from yesterday's high.  Comments by the French finance minister, Christine Lagarde, that she hoped that the GDP grew in the last quarter sounded more like wishful thinking than a sound economic forecast.  She also commented she felt that the European economy was picking up slowly. 

The 17% appreciation of the Euro versus the USD since March may be a source of European pride, but it is a headwind against economic recovery.  This morning the European industrial production was up 0.3%, less that the anticipated 0.6% and the previous period's 1.2%.  Perhaps the strong Euro is taking it's toll.  US unemployment claims went to to 502k less than forecast, 512k, and 514k in the previous period.  This afternoon the US Treasury releases their monthly report of the financial activities for October.  The report summarizes the total receipts and disbursements for the month.  It is forecast that it will show a massive 152.5B deficit for the month which would prorate to a 1.8T yearly deficit.  Embedded in the report is a summary of tax receipts, which will give some clues about the status of the recovery.

Perhaps weaker equities market today, has caused an extension of the break.  The earning season is coming to a close, and 83% of the companies reporting exceed their estimates.  This has resulted in a 62% increase in the S and P since March.  Now that the companies have contained costs by tighter control of inventory, expenses and employee costs, what are they going to do for the next period.  Someday they will need the reemergence of consumer demand, but unemployed workers do not make for very active shoppers.

The daily chart suggests the longer term trend is still up.

It is surprising to us that the pair did not spend more quality time above the 1.50 handle.    We are a little concerned about the equities levels but, that aside,  the long term trend appears higher.  Should the market purge itself of some longs, taking it down to the 1.4750 area we will then try the long side. This is a two way market.