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Markets Buffetted by Euro-Yen, German Naked Short Ban

Lots of cross-winds today, with much of the focus on Europe and the euro. While late-day news of a naked short selling ban on some German stocks, CDS and Euro-government bonds is getting a lot of attention, the main focus is the euro, which is again weak against the dollar and the yen, and has been all day.

The euro-yen cross is the primary funding source for all the risk trades. Traders borrow (cheap) yen, and buy euros. So when risk gets unwound, as has been happening today, traders reverse the trade: they cover their yen positions by buying yen and selling the euro. This is an indication of skiddishness on the risk trade (long equities and commodities).

The euro-yen is approaching the lowest levels since 2002; the euro-dollar is at the lowest levels since 2006.

Elsewhere:

Higher ethanol blend rates bullish for corn and fertilizer stocks? Morgan Stanley out with an interesting note this morning: "We expect the EPA to increase the blend of ethanol in US gasoline from 10% for all vehicles to 15% for vehicles newer than 2001, with a ruling likely this summer."

What does this mean? MS says that it will lift corn prices and benefit fertilizer companies like Potash, Monsanto, and Mosaic, all of which are trading up in a down market.

What about the effect on gasoline? Higher ethanol blends "will not only reduce gasoline demand but also make the production of gasoline easier, bearish for gasoline prices.”

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