Trade Team Update

As far as euro shorts, there's nothing fundamentally or with the price action that indicates taking shorts right now, but if you are short, the key thing you need to consider it what your margin sitaution is and what your crap-out point is... weigh the risks of holding those shorts and calculate how high the EUR/USD would have to go before it crapped-out your account. Risk management is essential right now!

The other question on trader's minds was what caused the EUR/USD to take-off early this morning... very simple... around 0130 EST rumors started flying around the wires that the Fed was planning on doing a 50bps cut before the 1/30 FOMC meeting and the market responded by pushing the EUR/USD towards the 4920 level before retreating back below 4900.

I know I sound like a broken record, but this morning was another clear-cut example of how all things interest rate related rule our market. The market is acutely focused on interest rates right now... in light of this intense focus on interest rates, the Fed, the ECB, talk of recession, etc., taking euro shorts against the market's momentum and the market's ideas on interest rates is a battle you're probably not going to win right now...

Tomorrow is a key day fundamentally... I'm not suggesting the market is going to make a 200 pip move tomorrow, because there's even bigger news later this week, but we get key PPI (inflation) and key Retail Sales (consumer) data tomorrow. So, which one will the market focus on more? I think the retail data carries a little more weight above PPI -- reason being, the Fed is more focused on growth than it is on inflation...

Inflation hasn't stopped the Fed from cutting rates. Slowed growth has caused the Fed to cut rates, so we need to pay more attention to what the Fed and the market is focused on... now, a very hot PPI number would certainly be USD supportive, but I'm not expecting a major upside surprise tomorrow with PPI. Retail sales, on the otherhand, should certainly disappoint to the downside. Should we see a downside disappointment, this will only further fuel the market's belief the Fed has to keep cutting -- even cutting as much as 50bps, which would bring the Fed Funds Rate below the ECB's key lending rate (scary).

On the manufacturing front, we also get the Empire Index, which will give us an important look at the current manufacturing situation, which hasn't been pretty the past few weeks...