Jim O’Neill from Goldman Sachs spoke at a hedge fund conference in London back in January when the euro was trading about where it is now. The euro hadn’t broken the 1.26 figure back then, but it was perilously close. He asked for a show of hands regarding the future direction of the currency. About 95% thought the euro was going to zero. Shortly thereafter the euro had a rip of epic proportions. The trade was as crowed as ten Keynsians in a phone booth.
Well, we are back to those levels now. The difference this time is that the euro broke the 1.26 figure yesterday. We are hearing about banks runs (more like bank jogs at this point) but there is evidence that money is being moved out. Will Greece leave the euro? Who knows.
All I know is that when news flow gets so negative and painfully redundant (this is crack for the financial media), it’s usually time for a bounce and that’s what we saw yesterday. The reversal was vicious and crippled some shorts. I also know that when you get paralyzed by headlines and refuse to trade those headlines, you are not doing yourself any favors. Yes the world is a mess, Japan is in a Depression and sells more adult diapers than children’s diapers. They haven’t heard a baby cry in years. There adult population will be halved in twenty years.
It’s important that the tape can at the very least hold yesterday’s move to some degree though. China PMI was released last night, the number was weak but futures are still higher and global markets look much better right here. More stimulus coming there I think. If Europe says something good (even by mistake), you will have seen a short term bottom in the euro. This should result in an epic short squeeze which will result in a strong sell off in the dollar and a face ripping rally in U.S. stocks.
Screw Europe, but be nimble. Tight stops.
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