Operation Euro

While the media focuses on the next dominoes in the chain (Portugal, Spain, Italy, and possibly France), they, predictably so, have missed the steady buying into weakness by ‘connected’ money. This steady buying represents the markdown phase of an organized trade.

The US dollar strength will disappear as fast as it materialized. Once the fuel is spent, the secular trends will resume.

Euro and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


The transition from the markdown to accumulation phase will be characterized by heavy commercial buying and a general media disinterest towards the once hyped European contagion. It's also likely that retail money will have significantly increased their short exposure. They are beginning to nimble at the bait already.

Euro and the Nonreportable Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest


Headline: WORLD FOREX: Euro Falls Below $1.31 On Contagion Fears

The euro fell below $1.31 for the first time since Sept. 21 on Monday as an announced EUR85 billion rescue of Ireland failed to calm concerns of more euro zone contagion.

Rather than ease fears, traders immediately focused on Portugal, Spain and Italy, which also suffer from a lack of investor confidence, several analysts said.

"It hasn't stopped the contagion elsewhere," said Robert Lynch, currency strategist at HSBC in New York. "If the expectation was that it would quell some of that fear, it has so far not succeeded. Italian bond spreads are up, Belgium bonds spreads are up," he said.