October 22, 2010 – The Euro is the New Canary in the Coal Mine


4) The Euro is the New Canary in the Coal Mine. Short term traders and long term investors should be keeping a laser like focus on the Euro/dollar exchange rate these days, as it has emerged as the canary in the coal mine for global risk appetite.

We live in a binary world now, and the European currency seems to have the highest correlation with the risk appetite of every description. When the markets are in 'risk on' mode, watch the Euro rocket. US stocks, emerging markets, bonds, commodities, and precious metals head off to the races. When the Euro falls back, markets are in 'risk off' mode, investors run for their bunkers, and the price of everything declines. This applies not just to your risky, marginal positions, but to all of them. It's really that simple.

Hint: the Euro has had a great run since early June, posting a 20% gain, a big move for a currency in such a short time. So the amount of risk in all markets is high right now. Just thought you'd like to know. That ski chalet at Lake Tahoe's Incline Village is beckoning as we speak.



Is the Euro Getting Reading to Sing?