Key News

• Germany's economy continued to suffer in January, industry reports showed Wednesday, with orders for machinery and factory equipment falling 42 percent during the month and 25,000 job cuts expected this year. The Frankfurt-based VDMA industry group said domestic orders fell 31 percent in January, while orders from other countries slumped by 47 percent. (AP)
• Australia's economy shrank 0.5 percent in the last quarter of 2008, the government said Wednesday in an unexpected announcement that suggested the country may be entering a recession. (AP)
• Stock markets in Europe and Asia rebounded Wednesday amid mounting hopes that China will soon announce a big stimulus package that could help limit the length and depth of the recession in the industrialized world. (AP)

Key Reports (WSJ):
7:00 a.m. Mortgage Application Refinance Index For Feb 27: Previous: -19.1%.
8:15 a.m. Feb ADP Employment Survey: Expected: -680K. Previous: -522K.
10:00 a.m. Feb Non-Manufacturing Index: Expected: 41. Previous: 42.9.
10:30 a.m. US Energy Dept Oil Inventories For Feb 27
2:00 p.m. Federal Reserve Beige Book

Quotable

"Unfortunately, people on the make seem to have a keener appreciation of the power of words, as the magic road to other power, than do people defending values that seem to them too obvious to require words."

                              Thomas Sowell

FX Trading - Chartage!
Gold vs. US$
Another head shaker it seems.  Just when we were warming to the idea of gold and the US$ moving arm in arm, the correlation breaks down or maybe pauses or maybe never was; either way we are now back to the old game of higher dollar and lower gold as you can see in the chart below (see the yellow rectangle on the right showing the US$ and gold divergence:

We wish we could tell you why, but we can't.  Is the buck due for correction or the old correlation back in play?  Just thought it was at least worth noting had you not seen it.  It also points out the danger of trading on seeming correlations.  Sometimes just about the time you start trading on them, they breakdown; so use them carefully.

Euro vs. S&P 500 Index

As much as we dislike the euro here, for a lot reasons we have already penned many times, we have to say it is holding up "relatively" well given the news and its former correlation with the US stock market, measured in the chart below by the S&P 500 index.  New low in S&P not yet confirmed by a new low in euro (at least yet):

Many believe this is a sign the euro is due for a major correction--we need to be wide open to that potential.

Euro vs. Hungarian forint

But, as counterpoint, our favorite play in Eastern Europe has made a new high; Hungarian forint - US$.  And the forint has been moving in even tighter lock-step with the euro lately...in the chart below we inverted the euro in the form or $-Euro (instead of EUR - US$) so you can see the visual correlation with the forint. 

...but other Eastern European currencies are gaining on the buck this morning...hmmm