As I have discussed the past few weeks...the market "wants" to go higher. This past week I have again been cautiously bullish in my short-term trading accounts and have traded the CAD from the long side.

Looking at the markets from the perspective of it's "All-One-Market" (AOM) I have wondered which market was the "Leader" and which ones were the followers. By Leader I mean which market was the driver...not necessarily which one went up the most...and my pick for Leader was the Euro currency, particularly the EURUSD as the market "wants" to believe that a solution to the Euro sovereign debt and Euro bank debt problems is in process.

The EURUSD hit a 17 month low (126.20) on Monday Jan 16 following the Friday Jan 13 S+P downgrades of several European countries. (In my short-term trading accounts I bought the S+P on Friday Jan 13...my thinking was that the knockdown of the US stock market on the EuroSov downgrade presented a classic reverse "Buy the rumor, Sell the fact" trading opportunity. I liquidated the trade the following week when the S+P appeared to hit resistance around 1300.) The Jan 16 low in the EURUSD was close to the low made during the panic in late 2008. The sentiment regarding the Euro leading into that low was very negative...nothing the authorities were doing was going to fix the debt problems and speculators had accumulated an all-time record sized short position. In the two weeks following that low the Euro rallied to 132.30... as sentiment, or perception about Euro area debt problems changed. (Most interesting: the CFTC data, as of Jan 24, shows that net speculative short positions in the Euro CME futures contracts GREW to a new record high of ~$28Billion - the shorts were adding to their positions despite the two week rally in the Euro.)

Euro-bears may argue (and I'm inclined to agree) that the "fix" the authorities have devised is only a short-term liquidity fix...that the solvency issues have only been postponed, if not made worse by the "fix." But....traders live in a mark-to-market world and the Euro has rallied nearly 5% in two weeks...a huge move in the FX world....and there is still a huge speculative short position out-standing. The EURUSD may indeed fall to around "Par" later this year, as some EURUSD bears have forecast, but short-term it has been bid higher and those record-sized short positions may add fuel to any additional rally.

The other candidate for Leader of the AOM rally is the US stock market, which had de-coupled, to some degree, from the EURUSD back at the beginning of November, and had de-coupled "for sure" back in mid-December....that is, the US stock market has rallied steadily since mid-December while the EURUSD fell into mid January before beginning to rally.

But whether it was the EURUSD or the US stock market that was the Leader over the past couple of weeks may not matter much....the CAD benefited and touched "Par" this week for the first time since late October. I bought the CAD because I am a cautious follower of this AOM rally and being long CAD was a more cautious position than being long either EURUSD or the US stock market.

I had the good fortune to be long CAD when the Wednesday Jan 25, Fed news caused a strong rally in FX and gold against the USD (but not so much of a rally in stocks...the S+P and the DJI rallied Wednesday on the Fed news but closed lower both Thursday and Friday while the FX and metals markets closed higher all three days...this "fits" with my thinking that the AOM market of the past two weeks is being driven by relative weakness in the USD.)

I'm presently flat in my short-term trading accounts...having been a cautious AOM bull through January. I've been cautious because I'm suspicious of the rally in stocks and commodities and the weakness in the USD. I'm anticipating a turn lower in stocks and commodities and a rally in the USD but I will wait for a confirmation before I make a trade.