Monday, 10/6/2008, 2.36am EST

Main points tonight:

-Everyone is running away from risk tonight – UJ and carry pairs falling off the map as the carry trade holding onto little value. Japanese investors appear to be the only ones holding up from complete disaster, as they continue to increase international holdings. This is going to weigh on base pair (EUR, AUD etc) spot value. Goldman has a target of 135.00 on EJ.

-Bailout passed, but world indices continue to drop as conditions and outlooks worsen. Despite the plan, economies are going to have a very hard time pulling away from this one, including the US. Investments are being liquidated on a global scale and much of this flows into the dollar, which accounts for 86% volume of all currencies traded (the “real” reason the dollar has gained so much strength as of lately)

-SPX target of 1080.00 almost hit. Could be a short term rally this week around this 1080.00-1050.00 area, based only on temporary optimism. Overall, selling into strength is the preferred strategy, so that goes for UJ and carry pairs as well. Closes below this 1080-1050 area targets 960. Keep in mind we’re still only at 2004 levels. In terms of price, we still have a ways to go before things get “really” bad.

-Crude continues to decline. The US surplus compared to the rest of the world still large and investors continue to sell into the 84.00 target. Decline also a function of risk appetite decreasing, as investments move into cash and active speculators bet on this happening.

-Gold continuing to fall due to a stronger dollar. Looking for a break of major monthly trendline. Physical gold still selling at a big premium vs. futures, however, and some gold demand should be noted.

-ECB rate cut talk still buzzing, despite last week’s hold.

-Dollar index approaching 81.80 50% retracement of 92.53-71.06 move.

Any currency reversals here? Maybe. EUR and AUD are the weaker pairs right now and going to have the hardest time going long on, GBP not as much. JPY looking for sells on rallies. Either way I’m looking for a correction and a close of some sorts on the weekend gap. Tonight everything is dumping like mad but we’re about in the right area for some technical reversals for a few hundred pips or more.

Levels:

EUR has sells at 1.3700, 1.3760-70, 1.3900, buys at 1.3550, 1.3410, 1.3321
GBP has sells at 1.7710, 1.7865, 1.7975, buys at 1.7475-1.7450, 1.7420 (50% retracement)
AUD has sells at 0.7700-0.7710, 0.7815, buys at 0.7315 (50% retracement), 0.7270, 0.7015
CHF has sells at 1.1460-80, 1.1595, 1.1770, buys at 1.1145, 1.1090, 1.0820,
JPY – sells at 104.50, 105.30, 106.00, buys at 102.70-60, 101.47 (50% retracement), 100.25
EJ – sells at 145.00, 144.00, 147.50, buys at 137.25

Make no mistake about it that the dollar trend is up, but I’m probably try to catch some dollar shorts today into Tuesday and maybe longer depending on how things go….gripping for another drop into the 3500-3300 area on EUR just in case. Overall looking for a further dollar strength in the long run. Doubt I’ll try to buy any JPY crosses…looking for sells there. I’m using the weekend gap on EUR as a general meter and going to see if it wants to get filled. After all the selling this past week its probable that it will, though could just as easily be a continuation gap. EUR and AUD are the weaker pairs right now so if they can buy, others will as well.

Again I’m not trading all of these levels. I may or may not decide to take them…..please see Friday’s comments for some more color on that.

Thanks and good trading,
Steve