Thursday -- Toast, Dudley, Subdivisions

S&P E-mini Futures:
Blew overnight gains.

News:
I heard it yet again:

"Get out the peanut butter. Get out the cream cheese. The dollar is toast!"

This from the "trader I like to fade." Same exact thing he said last March before it blew up in his face.

This time though, I'm inclined to agree with one of his points.

He's looking at the same level that I am -- 92.62 -- which if violated, could signal trouble for the dollar, and could be a sign that central bankers may have succeeded yet again.

Dudley's comments from the New York Fed yesterday, warning of "significant consequences" of a stronger dollar, were widely credited with causing the dollar implosion. He's absolutely correct, yes.

The problem for him and his cronies is that if one were to compare the balance sheets of all the central banks in the world, they would pale in comparison to the amount of dollar-denominated debt that overhangs the global monetary system.

So Dudley may succeeded in a short-term weakening of the dollar they despise, but until 92.62 gets smashed, there could be more consequences down the road.

Watch the action in the yen -- it is going the "wrong way" from Kuroda's most recent comments.

As more and more of dollar-denominated debt gets liquidated (at higher and higher prices) yes, the stress level rises and puts more of a bid underneath the dollar (and the yen due to its carry trade dynamics).

Study the Lehman event in 2008. Stocks crashed. Precious metals crashed. The dollar & yen soared.

It had nothing to do with "fundamentals" but was more about liquidating assets to pay off debt. This is what central banks are up against. They're taking on nuclear weapons with a switchblade.

Lawrence McDonald (@Convertbond) says it best:

"This time it's countries and oil companies that are levered up."

That's why central banks are scared, and why the price of oil is such a big deal. And the dollar, And the yen.

FX:
Follow through remains: JPY & CHF strength. AUD & CAD strength. USD weakness. A muddy scenario for risk.

Treasuries:
New highs yesterday on high volume. At least a retest of those levels expected.

Energy:
WTI crude still has not broken out higher. Term structure remains cautionary. NG down over 2%.

Metals:
Gold, silver, and copper each up over 1%.

S&P Outlook:
Yesterday's ABC scenario is still on the table even though the subdivisions of "B" need work. (chart not updated)