In Forex and Futures Commentary

There is just too much news to talk about tonight in depth so I’ll give you the key points:

-S&P 500 up 5.27% today on optimism that the $700bb bailout plan will go through, recovering from yesterday’s slump of about 8 ½%
-EUR/USD saw its largest, single day decline ever – daily range was about -415 pips (NY)
-Citigroup gets Wachovia in an inevitable outcome, absorbing about $42bb of losses, focus on longer-term play
-USD demand through the roof on peaking Libor rate, driven by lack of liquidity/borrowing
-Fortis gets bailed out with an EU11.2bb rescue package from governments
-Europe’s Dexia SA, the biggest lender to local governments got an EU6.2bb state-backed rescue
– Germany's financial industry provided Hypo Real Estate Holding AG with a credit facility
-UK’s Bradford and Bingley gets nationalized by the government to protect about 21bb pounds of consumer deposits
-UBS announces the elimination of 1,900 jobs in Investment Banking and Trading Divisions

…and that’s just since Sunday night. Whew!

So where do we stand:

EUR’s decline today has been noted by some on end-of-month exaggerations. I think they’re right, to a certain extent. Regardless, we’re now staring at a nasty drop that is going to be hard to correct. But this isn’t like before. I’m not convinced of a further nasty selloff like the one we saw at the beginning of August. The longer-term trend line comes in at 1.3925, and for short positions, that’s the big target. Oil had a big push today and it barely touched EUR; correlations are off due to the borrowing issue and overall demand for USD. This should taper off.

I expect SPX to consolidate short term with bias to the upside fueled by bailout optimism. This should help push other world indices higher and USD/JPY and related carry pairs higher.

Bottom Line: Still looking higher for EUR, GBP, buying on pullbacks for the longer-term move, though downside risk is still there. In fact I wouldnt be surprised to see these recent daily lows get taken out before any scrambling to the upside. USD/JPY I expect to consolidate with bias to the upside. Same goes for related carry pairs. Longer term outlook is still the same, however. Looking for a weaker dollar/higher commodities. The safer pairs lately seem to be AUD and NZD. My Gold outlook hasn’t changed and physical gold vs. spot is still at a massive premium…..looking for this to pan out and AUD and NZD are the primary targets.

Wanted to get this out tonight but I’m putting together some levels and will attach to this post when available. If you have RSS feeds you can see when I make every post – you can subscribe to them in the box to the right; emails are kept to a minimum. If I post trades, I’ll send out another email, but for intraday charts, I'll just put them on here. Thanks, Steve

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