Olde Faithful

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My longstanding bearishness on the Euro has been cited here countless times. It's comforting that, week to week, the trend of the Euro continues to erode steadily, even on days like this when we get a sudden spike higher. It seems astonishing that this was about almost 1.50 not long ago.


More incredible still is that even with monster bailout news (such as was received exactly two weeks ago), the true trend remains steady. Take note of the chart below; the green trendlines show the authentic direction of this cross-rate. The entire Euro-gasm Spanish bailout nonsense was an outlier neatly clipped by the red circles I've drawn. Even with a spasm that monstrous, the Euro was able to shake it off and resume its God-given course.


My only worry (and worry is something I'm quite experienced at) is that when the Euro does offer up another meaningful counttrend rally, it will powerfully fuel equities higher. Equities have been disappointingly robust in the face of the steady sinking of the Euro, and I can't help but think that Euro strength will goose equities mightily, as we saw a couple of weeks back.

But judged on its own merits, the Euro short stil remains a fantastic long-term bearish position. Being short the Euro – even with the large short interest that ZH warned everyone about – may seem too "obvious", but as one trader cited in my review of the Market Wizards book:

The great trades don't require predictions. The Soros trade of going short the pound in 1992 was based on something that had already happened – an ongoing deep recession that made it inevitable that the U.K. would not maintain the high interest rates required by remaining in the ERM. Afterward, everyone said, "That was incredibly obvious." Most of the great trades are incredibly obvious. It was the same in late 2007. In my mind, it was clear that the financial system was imploding and that most market participants hadn't noticed.