Key News

• China cut interest rates for the fifth time in three months after trade growth collapsed because of recessions in the U.S., Europe and Japan.
• The German economy is to contract by 2.7 percent in 2009, the Kiel-based Institute for World Economy, or IfW, said on Monday, slashing its previous forecast as Germany's exporters feel the effects of a global slowdown. (Reuters)
• Russian oligarchs are lining up for $78 billion of Kremlin loans to survive the credit squeeze, handing Prime Minister Vladimir Putin the opportunity to increase government control of the nation’s biggest companies. (Bloomberg)

Key Reports (WSJ):
No economic events are scheduled for today.

Quotable

"Doubling up has ruined a lot of people.  In order to double up, you must go against the flow.  You are saying, ‘I know that the market is going to turn and prove me right.’  No one knows when or how!”

                               Edward Toppel

FX Trading - Can we rest? Gold may lead the way. 
The volatility has been humongous in currencies, you might have noticed.  The huge run in the euro recently seems to have a lot of Johnny Come Lately dollar bulls changing their tunes, and now suggesting the dollar move is done.  It’s time for the dollar dirt nap again seems to be the new lament.  But it’s a very tough call in a market where volatility is spiking to all-time high levels to suggest a multi-day move means this or that. 

Our fundamental story hasn’t changed, as you know.  And today’s news (above) that China is cutting rates and Germany will contract more than expected are a big part of our dollar story—global demand has evaporated (Japan recently reported that November exports dropped at the sharpest rate on record). But….open we must remain because price action we must respect. 

Below is a daily chart of the euro.  Notice how the rally was stymied at the 61.8% Fibonacci retracement level, and now it is looking “overbought” based on the oscillators:

EURUSD Daily:

Now, might this be the first leg of a bigger move higher in euro?  Absolutely possible…but so far, gold has confirmed the recent corrective high in euro (or low in the buck)…

Gold Daily: Series of lower highs and lower lowers and so far capped by the downtrend line going back to June. Oscillators are turning down from “overbought.” We think gold goes a lot higher if the dollar does a dirt nap (and vice versa):

Gold vs. US$ Index (Inverted) Daily:  Same chart from above, but we have overlaid the inverse of the US dollar index (red line).  As you can see, they continue to track.  This chart shows as gold goes higher the dollar weakens (red line going up) and as gold goes lower the dollar strengthens (red line going down). 

So, maybe gold is the key indicator to watch.  A break above the downtrend line going back to June for gold could tell us the buck gets bashed again.  But then again, head fakes seem to be what this market is made of lately.

Stay tuned and keep you risk levels tight.  Thin volume going into the Christmas and New Year’s holidays could make it even more interesting, if that’s possible.