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Will We Hold It Wednesday – Dollar Strength Does Damage

|Includes: DIA, iShares Russell 2000 ETF (IWM), USO

I guess we’ll blame Portugal today

Just as we knew "something" would rally the markets last week, we knew "something" would take them down this week and, so far, it’s Moody’s cutting Portugese debt to junk status (with a still-negative warning!) that sent the Dollar back over the 75 line which, of course, sent the indexes and commodities falling (all priced in Dollars, as we often discuss).  I sent out a 4:44 am Alert to Members this morning saying the Dollar should go over the 75.20 mark (75.18 at the time, now 75.32 at 7:30) and that shorting the Russell Futures (/TF) at 840 was the way to play it.  The RUT Futures just hit 837.50, when the Dollar topped out at 75.40 for a lovely $250 per contract gain

Of course I also mentioned, in yesterday morning’s post, that our target for shorting oil (/CL) was $97.50 and we hit that line this morning as well but we were satisfied to take $1.50 off the table at our $96 target (the bottom of our upper channel) with a gain of $1,500 per contract for the day.  We are now back at $96.25 and our plan remains to short them again below $96 or wait until the inventory run-up tomorrow and let them fake demand again at some ridiculous price – when we can short them AGAIN (isn’t this the greatest game?). 

Who else can we blame for the market drop on the Dollar pop?  Who?  Yes Hu, that’s who.  The PBOC unexpectedly raised their benchmark rate by 0.25%, their third increase this year in an attempt to fight the inflation that Bernanke doesn’t see.  The move comes despite recent fears of an economic slowdown in China, and shows the top priority for authorities remains cooling inflation pressures.  "The rate hike suggests the People’s Bank of China is showing its determination to tighten monetary policy to rein in the high inflation rate," said HSBC economist Ma Xiaoping.  

Strong dollar - 3d image, conceptual strong currencyAnother market negative and Dollar positive item is the flight of private bond-holders from Greek debt.  Although they may have SAID they would participate in bond rollovers, private investors are quietly dumping out of all their Greek paper, leaving the EU holding a much bigger bag than they had anticipated.  Euro-zone officials have described €30 Billion ($44Bn) as their target for private-sector participation in the new
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