Interesting divergence Dow (Industrial) index and the EURO

The money pumps are still turned on the US, so we have up-ticks in industrial production and housing, two major industries that have been supported and underpinned by low interest rates and government grants. In the meantime Europe is now feeling the pinch of countries facing sovereign defaults which is from the much published pseudonym of the PIIGS, Portugal, Ireland, Italy, Greece and Spain. The European country that is gaining more press due to its horrendous accounts is Greece. So we have seen jittery markets in Europe and Asia, Asia picks up bad cues that comes in form Europe and it's markets reflect that in next day trading, the US on the other hand is still showing rangy markets but manages to to rally in a small range. The Federal Reserve has finally lifted the discount rate from .50% to .75% (for banks to borrow); this is a small step in trying to draw out money from the US economy.

In the meantime the EU, which will attempt to draw out liquidity, is also grappling on how to bail out Greece, so far market chatter has indicated that the IMF may provide the loans when recently the IMF will sell $7.2 billion of gold into the market.

So we have a diverge with US stocks/USD and the EUR (Euro). With massive short positions on the EUR, the USD carry trade could come to a crunching end. It would be now interesting to see how Asia reacts as liquidity begins to tightening, more recently China requesting banks increase their reserve ratios. If we do see liquidity tightening across the board, a doubdip recession cannot be ruled out in 2010. Especially if China crunches in 2010

Graph is the EUR/USD with overlay on the DJI
Note DMI with ADX showing cross over (RED line) sell on the EUR. Further sell pressure on the back of mild USD strength (Fed Fund rate at .75%)
Divergence between the DJI and EUR/USD, could show that liquidity rallies have been persistent for US indices. This may end in 2010 as liquidity tightens.