EURUSD Long 2lots @1.2866 - Why the market will keep falling though...

It's funny how it repeats. Not history but my story. Everytime I see a 3-5% pullback I think: This is a chance to get in cheap and ride it for quick reaction. Then suddenly you have the CDS market accelerate to hell. Even the central bankers now think we're in for a repeat of the subprime freeze, just this time it's a sovereign debt freeze. Banks everywhere worried about interbank lending to italian, spanish and obviously greek and portugese ones. They can't lend and you send one country after the other into a blitz-recession as the interbank markets freeze up. Hello double dip sauce.

And even though I'd like to talk up my position in EURUSD saying it's fallen from over 1.5 to 1.2525 and is at 1.2750 now, I'm having trouble convince myself that the parity talk isn't a possibility. But it shouldn't be. Because if something leads the EU into recession and knocks holes into Deutsche Bank, BNP Paribas, Santander, SocGen etc it will definitely feed into US exports, travel, etc. And of course there's the bigger UK and US debt bombs ticking. Those go off and the EUR will look safe as Gold or at least not worse right?

Regarding my own trading. I was watching the Dow slide and the Marketwatch.com site was refreshing every few seconds with 150-200 point drops at one point (as the whole world knows of course). I was kind of fascinated, my bigger worry was the EURUSD though. I think that the general direction of the Dow and also speed probably is pretty much right. The trades going though on PG were obviously stupid but that an index is down 3-5% on the back of what is happening on currencies and of course in the sovereign debt market is quite reasonable. Anyway I watched my P&L increase to -5k temporarily and then recover to -2.5k. I'm glad I didn't buy 1.27, 1.26, 1.2550 and then get a margin call. I've even been able to hold my EURUSD position with reduced weekend margin. Just goes to show that I'm not completely resistent to learning, i.e. my past experiences.

I've been buying into stocks on the way down for the 3rd party account. I'm still overweight cash/underweight equities, but I'm starting to think it's better to cash out with 5% losses on recent purchases and be even more overweight cash. Interbank markets freezing mixed with politics is not something I like being exposed to.

Another reason for my current bearish mood. The drop has sucked in a lot of money that probably thinks: Buy the dip (like me!). And as the days go by, we have less and less reason to be long. The Dow move says it all - down 10% up 6.5% (to finish at -3.5%) then down again 1.4% means that a lot of unsteady buy the dip hands are holding shares. I've seen this first hand in a stock I'm active in at the moment. The market maker has overloaded and the big buyer I saw regularly putting in nice bids has disappeared cos he got hit on the bids too often.

As a trader on Bloomberg said: Sell into the rallies.