Trade Team Update

Lets first look at the EUR/USD to discover why we're trading in such a tight range the past two weeks, then we'll look at some interesting and somewhat "confusing" market happenings...

As we noted on Sunday, this week is dominated by Eurozone fundamentals, with a few big U.S. fundamentals here and there, plus Fed and ECB activities towards the end of the week...

In the fall we started calling to your attention that the Eurorzone would begin seeing weaker fundamentals and slowed growth beginning in 2008. So far this week, for the most part, the euro fundamentals have disappointed to the downside...

Investor confidence is down, consumer confidence is down, retail sales were well below expectations, and although German factory orders beat the forecast, they were still below last month's numbers. Obviously, these factors are very EUR- and have kept it underpinned and in a tight range against the USD so far this week...

The other factor I see for the tight range is that the banks and the market is waiting for Thursday's ECB interest rate policy decision and Trichet's press conference. Eurozone inflation is hovering around 3.1% right now, which is well above the targeted inflation rate of 2.0%. Plus, Trichet has been over-the-top hawkish about fighting inflation and has even hinted at a possible rate hike on Thursday. I really believe the banks have taken notice of his hawkish rhetoric and are likely waiting to see what he does on Thursday before they make any big moves...

So, those are the key reasons we're in such a lame range... now, lets look at the other correlated variables...

Gold -- this commodity is flying through the roof, making all-time new highs and skyrocketing towards the $900 level, but the question is, how come the euro is not following in lockstep as it normally does? If my reason is correct, the answer is very simple... one of the "other" reasons investors buy gold is to hedge against inflation, particulary U.S. inflation.

Now that the Fed is finally admitting that the U.S. if facing inflationary pressures, gold is being bought to hedge against this inflation, and not so much because the dollar is weak, which is why the euro is not moving in tandem with it. And it all boils down to the fact that U.S. inflation is USD+ as it could keep the Fed's hands tied from cutting rates and will possibly make them have to raise towards the end of this year. So, this is my reasoning why gold and the euro are not strolling hand-in-hand through the fields together...

10-year Bond -- the 10-year benchmark closed at 3.78% today, which normally would be very USD- and would help push the EUR up. This has not been the case, and I believe it's for the same reasons why gold and the EUR are not moving in tandem. Securities are being bought as a hedge against inflation just like gold is.

Dow -- the Dow is just a flatout mess right now. Typically a falling Dow is USD+ and I suppose the Dow's weakness has kept the euro from pushing.

If you're confused by what's happening, you're just another member of a large club right now... I see mass confusion and uncertaintly in all the global markets and indicies right now... markets are not behaving as they should, markets are erratic, emotional, and downright ridiculous...

Plus, based on seasonal patterns, this is usually the time of year the dollar takes some ground back from the euro, so we certainly need to take that factor into consideration.

My best advice is this -- if you're having trouble wrapping your head around all that's happening, don't trade. Just wait it out until things calm down and become more clear. Use this insanity as a learning experience and not a conduit for taking bad trades or losses...

I don't really plan on adding any new trades, not even intraday until I at least see what Trichet does and what Bernanke has to say on Thursday...

Be smart! Don't overleverage your account!