Overnight

Overnight the Euro as you saw tumbled, initially it seemed that it happened as the market realized that China was not going to follow other central banks and flood markets with money/liquidity, the EUR/USD and other key pairs didn't act well initially, but there was really no great news to send the market higher overnight, which is what we saw, the positive divergences that built last week were there, the break below obvious support (head fake move) on Friday was there, but there didn't seem to be a catalyst and there didn't need to be one, the only catalyst I can think of is the weekly op-ex pin past and the cycle for the market to move up on a volatility shakeout of the shorts was now ready to be unleashed, this is where many market participants make the mistake of listening to CNBC and wanting to know why the market did something, we have a need to know, but in most cases, it's smart money setting these cycles up in advance and whatever news is available is used to explain the moves, even if the news doesn't correspond with the moves like the overnight recovery in the FX and futures market.

The best excuse I've heard is that the market moved because Greek yields dropped, but as shows, the AUD/USD and the futures market were already recovering well before the Greek/European bond markets even opened... so much for that excuse. This was based on weekend news that the Troika may be willing to give Greece 2 more years for austerity targets they have already missed, the important part was Germany coming back over the weekend and essentially ruling that out. Greek debt yields are low because Dan Loeb said he had been buying GGBs which causes other herd-like hedge funds to follow, Loeb no doubt was selling what he bought to them, selling in to strength.

On US economic Data, Retail Sales in the US beat expectations at 1.1% vs consensus of .8%. Last month of course was revised down from 1.2 to .9%.

The Empire F_E_D came in at -6.16 vs last month's -10.4, but missing consensus of a -4 drop, better than last mont, not as good as consensus, a miss. Every sub-index except New Orders, declined, this includes, inventories, prices paid, employment, shipments, delivery times, unfilled orders, etc. On the whole, not a good report and the 3rd monthly miss in a row.

As we saw in bank earnings last week, Citi's net income beat expectations on the same accounting gimmick seen last week and which will be seen all earnings season with banks, they simply shift loan loss reserves over to income, a simple accounting gimmick to make earnings look stronger than they are and another reason why I think QE3 won't only be different, but was in fact a panic move based on banks' reserves which are not enough to withstand another decline in the economy or shock brought on by Europe, the F_E_D seems to want to get ahead of it this time unlike 2008 and earnings for financials are confirming this line of thought as the only way they can beat expectations is through obvious accounting gimmicks.

As for the market right now... Gap filling, that seems to be all we are seeing so far this morning.