Market Comments:
More gyrations in the Asian session arrived like clockwork as rumors emerged of Chinese plans to tighten capital requirements for banks, a move that could threaten the recovery in Chinese asset markets. So Asia closed on a bit of a sour note, Later, however, it was the very strong preliminary European PMI manufacturing and services data that had the risk-takers swarming around the punch bowl once again for another dose of bullishness. It appears that the major US and European equity markets want to test the highs for the cycle again after the recent correction lower, and this is equating to a testing of the low for the US dollar.
It's tough going for the bears here - the very final retracement levels are arguably still in place for the last shreds of hope that we could yet see a follow up move in the USD to the strong side, but if the risk elephants keep trampling the bearish camps here, it appears we will have to test to new lows in the USD if equities burst to new highs. Sentiment and positioning seemed to stretch for us to want to switch sides for now. Yes, there is no absolute reason we can't continue on to 1100 in the S&P and 1.50 in Euro if current market conditions hold - the first six months of 2008 showed us how long fantastic delusions can hold in the marketplace (the idea that the US meltdown could be contained and that the rest of the world could simply ignore its center of gravity). But it is our firm belief that the market has really moved dangerously out of line with reality.
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