Trade Team Update

Well, the moment the markets were waiting for has come and gone with little fanfare... and probably to the disappointment of many. In almost robotic-like fashion, mademoiselle Trichet stuck to the party lines during his press conference this morning.

He didn't give USD bulls much to work with and left EUR bulls with no new rhetoric or signals to hammer the dollar with. There were really only two things the market's were listening for:

1. A signal of potential rate cuts in the near-term.
2. A downwardly revised view of Eurozone growth and overall fundamentals.

Trichet did speak of downside risks to growth but he did not, in my opinion, use any new or strong rhetoric that would give the market much firepower to slaughter the euro.

It's no secret growth is slowing in the Eurozone and that it will continue to slow as the year goes on, but the market has been getting anxious waiting for any signs or signals that Trichet wants to cut rates to re-stimulate European growth.

Those anxious traders didn't get that signal today as Trichet remained clearly hawkish on inflation/price stability. And rightfully so as Eurozone inflation is well above the ECB's target rate of 2.00%.

At this point it's just not possible for Trichet to back off from the hawkish rhetoric in regards to price stability... inflation is rampant in Europe just as it's rampant in the U.S... the only difference being is that the ECB admits it and is maintaining a monetary policy stance to keep it from getting out of control, whereas the Fed is lying about it and letting it persist by price fixing the market's and keeping downward pressure on the USD.

Even still, I will maintain my stance that we see an ECB rate cut in the second half of '08, potentially during the latter half of Q3 or during Q4. So, for at least another month we have an interest rate differential that clearly favors the euro vs. the dollar...

Tomorrow:

Before we talk about tomorrow's fundamentals, just a quick word about today... Initial Claims came in better than expected but I can't be too excited because we're still well above the 350K level which is nothing to cheer about. On the flipside, U.S. productivity numbers came in better than expected and gives us another glimmer of a turnaround with some USD fundamentals.

Tomorrow we get one piece of data from the Eurozone and one piece of data from the U.S. and both are key. First we get French Industrial Production which I must forecast an at or below expected print. Things are really not great in France and I can't see a EUR+ print.

We also get the Trade Balance figures tomorrow. Trade Balance is vital. Not only are the banks and market players keyed in on Trade Balance data, but all the markets as a whole take this report seriously.

One of the reasons the USD has been so weak the past few years is directly tied into the abysmal Trade Balance situation. The demand for U.S. goods has been steadily declining over the years and U.S. demand for foreign goods has been on the rise. That right there is a recipe for a weak dollar.

But the Fed has had to keep the dollar weak in order to heal the beatup Trade Balance. So far the Fed's mission has failed because we've not seen really any USD+ turnaround here.

My forecast for tomorrow based on my research is that we see a better than expected print. I believe we may be at the point where the persistantly weak dollar could benefit the Trade Balance.

EUR/USD:

I was waiting until after Trichet's performance today before revising my overall EUR/USD bias. I'm basically seeing Trichet holding a neutral stance on growth and rates. That translates into me maintaining a neutral bias overall for the time being.