Playing with currency monsters

Over the last 24 hours Flash has turned his attention to currencies. The short gold trade has been a monster and Flash increased his risk substantially on this at 8am which turned out to be exactly the right call. At one point in the day he was up to 25% short gold - right now he has 15% of the fund short gold and will keep it that way unless oil decides to rear upwards - a few wobbly moments as expected today, but if oil breaks down below 125 then he can't see any reason why gold won't tumble too. He also noticed a Bloomberg report somewhere about plentiful gold supply and takes that into account too.

So today, despite all the froth and a thrilling rally that fizzled out this afternoon, was not really a day for equities, although all the equity positions are looking marginally more healthy than yesterday, with the exception of GM which went wobbly after some very unpleasant data on the weakness of the US economy. Given all of that, Flash may take some profits on some of the equities (he halved his GM, Citigroup and Ford position this evening) depending on how things pan out. However he's put a cheeky long order in place on China Eastern Airlines and will wait with interest to see if that particular stock will continue to do what BA and UAL have done over the last couple of days. On UK equities his longs have made steady progress rather than spectacular gains but he's sticking with them for now. He was tempted to bash a couple of speculative shorts on the FTSE and the Dow at various points in the day, just to cover the long, but couldn't quite bring himself to do it: something he might just come to regret in the next couple of days.

No, the real action today has been in currencies. First off this morning Flash increased his short EUR/USD position, and initiated three more - short AUD/USD, short NZD/USD and long GBP/EUR. All have been excellent. NZD helped along by the bank of new zealand lowering interest rates and suggesting that they could go further too. Another possible signal that inflationary pressure may have peaked? And he sees no particular reason to exit these trades right now - plenty of margin for any bounces. His overall call - that the European economy is in even deeper shit than the US - means that he thinks the Euro is way, way overvalued. So if he can just hold out he thinks there are some big opportunities to be short the euro against virtually anything. And if the BoE does increase interest rates, god help the housing market, but it'll be another nail in the coffin for the euro too.