France perd AAA

OK so now we know what we’ve known for a while and the markets are reacting. I’m watching 3 charts: The VIX, ES_F or the S&P, and the EURUSD for a little consolidation.

If you look at the VIX which has just passed 22.

and then the $SPY which is bouncing off 128 (I’ve left my levels)

and finally the $EUR.USD

The divergence between the $EUR.USD and the $SPY is relatively surprising. There’s been a lot written lately about the decoupling (since mid December) of the US economy and the economies of Europe, though after the employment numbers and retail sales numbers released yesterday, market participants are starting to show some doubt. And now a French downgrade… Hmm. After the dust settles on the downgrade we might get back to fooling ourselves that Europe’s problems won’t effect the US, but don’t hold your breath for too long, eventually these two charts will start to find a stronger correlation.

The lower Euro will eventually boost export data in Europe, and put pressure on that same data in the US. As a side note, and in principal your BMW or Mercedes should cost you 15% less today than in did 2 months ago. Does it? I’d like to say the same is true for Renault, but that’s another story.

I’m expecting a consolidation in the $SPY around 128.50 and will be selling a bit of this volatility.

Good Trading.