Chinese and US economies are more robust than anyone

Outlook:

The usual Thursday unemployment claims today are expected (Bloomberg) to rise to 365,000 in the week ended Oct 13, with applications down to a four-year low of 339,000 in the previous week and causing a ruckus about cooked data. Remember, applications are always revised. We also get the Conference Board leading indicators, expected up 0.2% in Sept after a small drop in Aug. The Philly Fed may show a rise manufacturing for the first time in 6 months, expected at 1 from -1.9 in Sept (Bloomberg) or even 2 (Market News). Even the natural gas data from the Energy Dept could get some attention today, since gas has become a cause célèbre over re-allocation, high-speed algo trading and a bunch of other factors.

Bottom line, both the Chinese and US economies are more robust than anyone thought just a few weeks ago, making the world safe for risk, even under-estimated risk like what we see in Europe. The EMU sanity check:

• The IMF predicts a 80% probability of eurozone recession in 2013

• The WSJ estimates capital flight/deleveraging credit contraction by $2.8 trillion in assets by end-2013

• German thank-tank forecast EMU growth at -0.5% this year and +0.1% next year.

• S&P cut Spain's rating two notches to triple-B-minus, one step over junk, and Moody’s has the same rating (Baa3), also one notch over junk.

• The EU Summit on Oct 18-19 that was supposed to resolve the Greek bailout terms will not do so.

We can repeat what we wrote yesterday, although with a new caveat. It is hope and dreams driving the euro upward, but even the best price move suffers retracement once in a while, if only for profit-taking. Market News sees the max at 1.3145 while we see a re-test of the Sept 17 high at 1.3172, but those two things may be the same thing and the exact number doesn’t matter much. The point is that the euro is nearing a cap and at some level near the cap, traders are likely to dump and run. The ending point for a correction is probably near 1.3000. We continue to think the euro “should” be far under that, even under the recent low at 1.2833 from Oct 10, but the technicals argue otherwise. Once an intermediate high has been taken out, as we saw late Tuesday when the euro jumped the previous high of 1.3080 from Oct 5, it’s a new game.

	SPOT	CURRENT POSITION	SIGNAL STRENGHT	OPEN DATE	OPEN RATE	POSITION GAIN/LOSS
USD/JPY	79.22	LONG USD	WEAK	10 /17/12	78.46	0.64%
GBP/USD	1.6160	LONG GBP	NEW*WEAK	10 /18/12	1.6160	0.00%
EURO/USD	1.3124	LONG EURO	WEAK	08/07/12	1.2403	5.81%
EURO/JPY	103.97	LONG EURO	WEAK	08/06/12	96.72	7.50%
EURO/GBP	0.8116	LONG EURO	WEAK	08/06/12	0.7943	2.18%
GBP/JPY	128.04	LONG GBP	NEW*WEAK	10 /18/12	128.04	0.00%
USD/CHF	0.9217	SHORT USD	WEAK	08/07/12	0.9686	5.09%
USD/CAD	0.9777	LONG USD	WEAK	10 /04/12	1.0229	-0.86%
AUD/USD	1.0400	LONG AUD	NEW*WEAK	10 /18/12	1.0400	0.00%
AUD/JPY	82.38	LONG AUD	WEAK	LONG AUD	81.19	1.47%
USD/MXN	12.7770	SHORT USD	WEAK	07/30/12	13.2485	3.69%