EUR/USD Weekly Outlook 5/25 thru 5/30 2008

All things considered it looks like we have another interesting week ahead of us... I'm fully expecting volatility and some great price swings which will allow us to capitalize on great profits this week.

Fundamentally, this week is all about the consumer, growth, and inflation for both the U.S. and Eurozone. In addition, we get key U.S. housing data and several speeches by various Feds.

As always, we'll cover each fundamental even in the daily updates and do what we can to be prepared for what's on the horizon. Friday should be interesting as we get the Core PCE Price Index. The Fed pays very close attention to the PCE data as it relates to setting interest rate and monetary policy. The Fed uses the PCE data to gauge overall inflation in the consumer sector.

If we're being honest, that piece of data should be over-the-top USD+. If the Fed is done cutting rates as I think they are, surely we'll need to see the truth starting to be told here... based on my own research and data, inflation is running wild like a freight train thats lost its breaks...

I estimate true inflation to be running anywhere from 7.5% to as high as 10%. Sooner or later the Fed will be unable to continue lying to the markets about inflation and the truth will have to be revealed and reflected in the data.

The cost of rice is up almost 90% year-over-year. The price for staple dairy products has risen anywhere from 25% to over 50% year-over-year. The price of wheat is up over 90%. And then there's the cost of fuel which is wreaking havoc on the U.S. consumer. Not just the consumer but also in the trucking and shipping industry.

Our truckers are getting squeezed by disgusting diesel costs. The majority of food products in the major supermarket retail chains are delivered by 18-wheelers. Now, in addition to the rising costs of food, food production, you add in the rising costs of what it takes to deliver the food to the supermarkets and you've got a recipe that is turning disasterous in the U.S. and other parts of the globe.

I'm sensing that the anger is starting to brew in the U.S. and it's just a matter of time before the Fed starts to turn its eye from credit and growth to the stiffling inflation situation. The average family cannot sustain if inflation keeps this pace. Real wages are not keeping up with real inflation. Our citizens that depend on social security benefits to survive are not seeing their monthly payments match, percentage wise, with what inflation is doing.

Do you see where this is going? I've given you some food for thought because I want you to think this through as you consider the market, trading, and the EUR/USD in the weeks and months to come...

EUR/USD:

Once again the pair will start the trade week in a percarious position. All of my upside targets were easily reached last week. Fundamentally, the USD is still weak and under pressure with little signs of a true reversal in that regard.

My short-term bias is to remain euro long, buying cautiously on the dips and adding strategic shorts along the rise back up. Don't forget the market will be ill-liquid until 0300 EST on Tuesday morning. All U.S. markets are closed on Monday and so is London.

Those thin market conditions leave a heightened probability for wild price swings. When the market is thin, especially when U.K. and U.S. banks are closed, it's easier for the other banks and traders to push the market in the direction they would like it to go.

This means my trade plan over the next 48-hours will stay on the conservative side. I absolutely do not want to get caught on the wrong side of the market nor do I want to get swept up in a low-liquid price move. I am patient and more than happy to wait until Tuesday to take my first trade if I have to... that doesn't bother me one bit. The longer I play this game the more patient I get to pick and choose my trades that fall inline with my strict trading criteria.

Overall, at this stage in the week I have a topside target of 1.5980 should the market continue to want to push the EUR/USD to the topside. Although it's very early in the trade week, I believe the market is still on the bullish side. In order to reach 1.5980++, we do have some hurdles to get over and there will be some big money bears trying to prevent the euro from making gains it honestly has no right to make...

On the other side, I have an overall bottomside target of 1.5520 should the market want to cap the euro's gains and do some downside testing.

Again, it's early in the week and the market's not even open yet, but I do have some overall key levels for you to be mindful of.

Key upside levels:

1.5784
1.5798
1.5818
1.5842
1.5868

Key downside levels:

1.5751
1.5724
1.5708
1.5692
1.5674

Again, things will be thin and it's imperative you're prepared to expect the unexpected. In addition to the potential for illogical price swings, expect to see wide spreads, times of boring ranges and a bigger extended move that can happen when you least expect.

Also, conditions will be ripe over the next 48-hours for the banks and brokers to run stops and trigger stoplosses which will help fuel an extended move in either direction. Please take the proper risk and money management precautions as we start the week.

Lastly, we must watch commidities this week... if gold and especially oil continue to make topside gains the euro will have to gain with them. I think oil is due to correct a bit but that's just my own opinion. It's certainly not showing many signs of cooling down. And if it does correct I'm sure there will be some geo-political event that pops up somewhere on earth to drive the price back up... this you can count on.

Be smart, don't make stupid trades and don't take stupid risks this week... it's just not worth it.

To those celebrating the holiday, be safe and have fun and enjoy this time with your families. To all veterans who have served at home and abroad, we certainly salute you and thank you for your service.