Key News

• German Industrial Production Unexpectedly Fell in October, Dropping 1.8% (Bloomberg)
• The Next Bubble: The Looming Crisis in Books About the Financial Crisis (Infectious Greed)
• Buying and selling castles in the sand (Financial Times)

Quotable

“The westerners who thought they knew what they were doing could use many such lessons in how the world works.

“For example, I was recently told by an investment dealer how the whole mess could have been avoided if only the ruler of Dubai had agreed to offer a state guarantee for all the Dubai World paper. Regrettably, he apparently had a better understanding of the value of empty buildings in the desert than they did.”

                             John Dizard

FX Trading - Contributing thoughts ...
I’ve included a link at the end of this article where Jack is talking to HoweStreet.com ... discussing the expectations for the US dollar and its counterparts, as well as our perspective on Japan, UK, Eurozone and the potential for global market fallout from Greece. Be sure to listen in. But first ...

A friend of ours passed along his thoughts after the US dollar had a huge up-day on Friday ... following the much, much better than expected US Nonfarm Payrolls report. He is also a currency market analyst and seems to take a similar view, as we do, to the US dollar and market behavior:

“See if we can get past the 24 hour-rule of torture…all dollar rallies must completely retrace in 24-hours.”

And as he put it last night:

“Well…24-hours and no complete reversal…that’s a feat.”

And another friend of Black Swan who also has an eye on currencies, among several other markets, sent us a chart yesterday that he thought we’d find interesting. We do, and we thought you might too:

The chart simply shows that the short position against the US dollar -- betting it will continue to go lower -- is as large as it’s been since the US dollar index was setting records lows last year.

Now, that chart does not reflect positioning since the release of US Nonfarm Payrolls on Friday. We may be witnessing some short covering in the wake of Friday’s action. But at this point that is still only a minor development.

In other words, traders and investors who believe the US dollar will continue to suffer from horrible monetary and fiscal positions have not been phased. And Ben Bernanke recently did his part to affirm this view. He said:

LONDON, Dec 8 (Reuters) - Global share markets were becalmed on Tuesday and the dollar struggled after Federal Reserve Chairman Ben Bernanke gave a cautious assessment of the world's biggest economy, driving investors towards government debt.

European Central Bank President Jean-Claude Trichet was similarly cautious, saying the euro zone economy faced a bumpy road to recovery and the prospect of modest growth ahead.

Bernanke dampened speculation of an early U.S. interest rate rise, saying the economic recovery still faced "formidable headwinds" and the central bank was sticking to its pledge to hold benchmark rates at exceptionally low levels for an "extended period".

So should we heed our friend’s advice about the 24-hour rule? Now that the dollar didn’t totally reverse all its gains from Friday within the following 24-hours of trading, is it safe to say the US dollar can strengthen from here?

Or does that analysis even matter to the players who seem comfortable on top of the dollar rather than underneath it?

The fading expectations surrounding the Federal Reserve raising rates “sooner rather than later” are allowing the crowd mentality to drift right back to what they know: short the US dollar.

It looks like a very familiar pattern shaping up ... one that doesn’t bode well for the buck. But there are some key technical levels that will be the focus in the short-term to help determine if in fact we are moving right back to business as usual.

But of course, it’s never that easy, right? Click here to listen in on Jack’s interview with HoweStreet.com and get an idea of some reasons why we actually might not resort back to business as usual for the buck.

As we get further into the US trading session the dollar is gaining momentum. The pound is getting clobbered; the euro is falling fast and emerging European currencies are getting slammed.