Tuesday morning

A moderate Euro reversal given how bad the Euro GDP numbers were: Q2 at 0.2% (0.8% annualized) vs expectations of 0.3%, and Germany at 0.1% vs. expectations of 0.5%.

SPX futures down 1.5% on weakness in Europe:  DAX down 2.6%, CAC down 2%, and FTSE down 1%.  I expected the Euro to fully reverse its move yesterday to the 1.43 level, although Sarkozy and Merkel have yet to meet which may lead to further Euro weakness.  Also, Euro sovereign CDS are wider across the board, another leading indicator.

Today I am watching the Euro closely and any signs of a relief rally in Euro markets into their close.





Interesting to note Euro is trying to hold 1.4370 level where it bottomed during market hours yesterday.  Just a coincidence SPX is also trying to hold the lows?  This is significant because if it does hold the lows, it won't take much for it to rally and retest 1.4450 resistance.  This will mean the "short USD, long risk assets" trade is still intact and will accelerate with a breakout in the Euro.  The fact that the Euro is not getting crushed here speaks to the fundamental weakness of USD.  This relationship could change if the ECB becomes more dovish and loosens monetary policy by lowering rates (thus making the Euro less attractive relative to USD), maybe not so unreasonable given the tepid GDP numbers this morning.  But this only becomes relevant when the ECB meets next on September 8.