FX Futures Edge: Wednesday, February 18

The European debt contagion has been “kicked down the road” as Spanish and Italian short-and-long term bond yields have moderated recently given the ECB “plan” to buy bonds of up to three years in maturity...but only if asked; and only if conditionality is imposed upon those asking. The Fed has also changed its game from “inflation-fighting” to “unemployment fighting” with the new move to QE-4; and with any war -- they will go further and farther than anyone believes in printing money to achieve their ends...regardless of their balance sheet concerns.

STRATEGY: The S&P 500 remains above the 160-wma long-term sup- port level at 1275; and the standard 200-dma support level at 1404. Collectively, with the breakout above the Sept-2012 highs at 1475 has run into major overhead resistance, and shall likely find “rough sledding” at this level given the relative under performance of the NASDAQ 100. We are long of gold; and we are short the Russell 2000.

CAPITAL MARKET COMMENTARY
WORLD MARKETS ARE MIXED AMONGT REGIONAL LINES: Asian bourses closed lower on their trading sessions, with China dropping -1.6% and Japan falter- ing modestly by -0.3%. In Europe however, the bourses are sharply higher on news that the German ZEW investor confidence index rose to 48 from 32...the consensus was for a rise to 35. This pushed Germany’s DAX higher by +1.1% and France’s CAC higher by +1.3%, which is actu- ally greater than the rises seen in Spain and Italy of roughly +1.0%. What was lost this morning was the France’s Eco- nomic Minister noting that the French economy was going to grow markedly slower than its target – and – the deficit target was going to be missed as well. Outside of this, we are seeing the U.S. dollar rising once again, with the pre- cious metals rising – and energy mixed.

On the US ECONOMIC FRONT, there is only one report today of mentioning – the NAHB Housing Index for February, which is a homebuilder confidence index. Consensus is for a rise to 48 from 47, of which 47 is the very same number extant during January and December. Thus, it has stagnated just a bit, and we wouldn’t be surprised to see it do so once again. Also of note, it is being reported that President Obama is about to turn up the heat on Republicans over sequestration that will kick-in on March 1...which is next Friday. If we had to venture a viewpoint, we would be- lieve that the Republicans are about to allow the cuts to take place, for they will not be seen caving in to their base a second time. And given the market’s extended nature, then certainly this could cause a very short and sharp correction as we saw during late-December.