However, the S&P is not correlating perfectly to the DXY. It seems to correlate intraday, however (take out the first and last 30 minutes of trading). The EUR short trade appears to be way overcrowded. Obviously, any news by the ECB could really turn that trade quick. They have all the incentive to do so. Also, remember that the ECB has a huge hoard of gold (500+ tons). Also, remember Spain, Portugal, Italy and Greece all have large stockpiles of gold. Italy, alone, has 2700+ tons of gold! I would argue all 4 PIGS (not Ireland) are in better overall financial shape than the US.
Portugal has 400+ tons of gold, which accounts for nearly all of its foreign reserves. Think of how small of an economic producer Portugal is and they only have a population of 10 million! 400 tons of gold is the equivalent of the US having about 16000 tons of gold (which, they do not). If a true monetary crisis were to hit, I think Portugal would be in much better shape than many.
Also, the rest of the EU countries tend to have huge stockpiles. France has 2600+ tons and Germany has 3700+ tons. If I were to bet against an economy/currency, I think I could find much worse off than the EU zone. The "everyone bet against the EU and Euro" trade is just some sort of brain-wash trade because that's all they have talked about on the news for months.
(For reference, The US claims to have about 9000 tons of gold. Some have claimed that this may not be true since the US gold holdings haven't been audited for around 30 years.)
Six months ago all anyone could talk about is how the USD was going to just keep going down. Look how that turned out. Today, everyone is SCREAMING that the EUR is going back to parity and everyone has piled into the EUR short train.
After going buying S&P May 110 puts last week, I sold those on Friday and took a bit of the earnings to buy S&P May 118 calls. Any positive news for the Euro this weekend and we could see another huge gap up on Monday. Just the money being released to Greece could cause some panic buying of the Euro.
You have to raise Euros to pay for that huge loan. That means there is going to be a huge need to fund in Euros. Higher demand equals a higher price.
Euro appreciates against the USD. All the skynet flash trading programs kick into overdrive and will bid up every equity with a ticker symbol as the USD falls. S&P north of 118 next week if the Euro can get back to high 1.20's.
S&P May 118 calls. Cost of 25 cents a share. Upside could easily be $1+. If Euro doesn't appreciate on/by Tuesday, I close out my position and take my loss. Loss would probably be in the 20-60% range. I'm hedged slightly here with SLV May 19 puts at 30 cents.
Six months from now, all the news outlets will be talking about how strong the Euro is compared to the USD. Everyone will then jump on that bandwagon, too.
In the meantime, I am all but happy to keep the bulk of my equity in cash.
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