FX Futures Edge — Thursday: November 10, 2011

OVERNIGHT NEWS: All forex eyes are upon the Italian debt markets, with Spanish debt markets in their peripheral vision. Thus far, the ECB has stabilized the situation somewhat by bringing Italian yields back bleow the 7.0% level with an aggressive buying campaign. This cannot go on forever, and it is merely a stop gap measure as the European authorities continue to dither. They could not get Greece right in 2-year, so why do we believe they shall be able to conquer Italy and then Spain in a matter of a day or a week or a month or even a year. We don’t think they shall finally act until a cathartic event occurs. And we believe the markets are on the precipice of just such a move at this point.

Yesterday, we added to our positions via a short EUR/USD and short EUR/CAD; and we’ll look to hold these positions and add to them as they begin to show profits. That said, the EUR is higher, and trading “mid-range”, but weakening as we write. Nothing more need to done today, for we are sufficiently positioned to profit from a sharp EUR drop against the USD and crosses.

1.) LONG: Aussie Dollar /Swiss Franc Cross (AUD/CHF) — 1 UNIT: We recommended a long AUD position on 11/4 at 1.0364 (CME: 1.0315). Yesterday, we added a short CHF position at .8931. (CME: 1.2010). This brings us to a long AUD/CHF cross at .9256 (CME Spread: -16.75). We are modestly lower on the cross, but look for it to work its way higher in the weeks ahead.

2.) SHORT: Euro (EUR/USD) — 1 Unit: We recommended a short position on 11/9 at 1.3595 (CME: 1.3600). The recent foray higher into the 200-dma failed, with lower lows expected in the heel of the Italian debt crisis ramping up.

3.) SHORT: Euro / Canadian Dollar Cross (EUR/ CAD) — 1 Unit: We recommended a short cross position on 11/9 given the rally in the cross has reached upwards into overhead resistance of the 50-dma/100-dma/580-dma cross. Thus far, it is proving its merit, but more importantly — our 40-day model is turning lower. We’ll mark our position at
1.3836.

Please see the attached pdf file for the full report.