Trade Team Update

Although we were stuck in a tight range today the trading was spectacular,I love the volatilty of 200 pip moves but I certainly can't complain when the market is holding out its hand to give easy pips.

We did have some key fundamental data released but as I indicated in yesterday's update I was not the least bit concerned with that and I was focused on Bernanke. Obviously the market was thinking the same way.

Bernanke was again hawkish on inflation but not nearly as hawkish as he was yesterday. The reason we moved big yesterday and not at all today was because Bernanke shocked the markets with his hawkish inflation tones. When the most powerful central banker on earth shocks the markets, the markets move.

Bernanke did downplay the connection between the 1970's inflation debacle and today's inflation situation. He basically said there was no similarities and that the U.S. would not suffer the same way.

I do not totally agree with his assesment. I think overall inflation is not much different between then and now. When you compare food and fuel prices between 1975 and 2008 and then you factor in the massive devaluation of the dollar you very much have the same situation. I'm not a Harvard educated economist but after doing some basic research it's pretty clear to me that the 2008 value of the dollar doesn't buy you any more than the 1975 value of the dollar when adjusted for not only inflation but for depriciation.

One of the other reasons I cannot agree with Bernanke is because the financial landscape in America is totally different in 2008 than it was in 1975. There has been massive wealth expansion in the U.S. between the late 1980's and 2008. There is a higher concentration of per capita wealth in the U.S. presently. This means the U.S. consumer is more enabled to spend in 2008 compared to 1975. The inflation is the same but the consumer is more equipped financially to deal with the price instability.

In addition, there has been a massive expansion in credit, lending, and debt since 1975. The U.S. consumer has many more avenues to access credit as opposed to the consumer in 1975. In 1975 consumers were not carrying multiple lines of credit as they do in 2008... in 1975 consumers didn't have equity in their homes to use as an ATM machine as they do now.

The point is, I don't see any difference between 1975 inflation and 2008 inflation, the only real difference is consumers have more disposable cash and access to credit to keep spending and to keep paying inflated prices on food, fuel, and consumer staples.

But now the dollar is even more devalued than it was in the 1970's and the inflation situation is the same, it's just easier for the consumer to manage because of the easy access to use debt and credit as a means of purchasing power.

Bottomline -- Bernanke is an idiot.

Tomorrow:

If you like a good circus side show, tune in to Trichet's press conference tomorrow morning. The market's are anxious to hear how Trichet is going to balance his rhetoric between rising Eurozone inflation and falling Eurozone growth.

Tomorrow is all about the ECB and Trichet. The ECB cannot cut rates and they cannot raise rates. Inflation is too high for the ECB to cut and growth is slowing too much for the ECB to raise. The ECB will hold rates steady at 4.00% tomorrow.

All eyes and ears will be on Trichet and will be listening to how he tempers the inflation and growth situation. Overall, I expect to hear Trichet stay on the hawkish side of the fence. Where things will get a little dicey tomorrow is if Trichet ups his dovish rhetoric on growth, credit expansion, the consumer sector, and the employment sector.

The market is expecting Trichet to talk tough on price stability. Where Trichet could shock the market is if he repeats his downside tones on growth like he did three months ago. Any strong rhetoric on falling growth should put a hurting on the euro. The market is looking for reasons to sell-off th euro and Trichet could give a great reason tomorrow...

You can expect the cadre of journalists to press Mademoiselle Trichet on future ECB monetary policy, specifically on the future of the ECB's key lending rate. We'll probably see his hands flying and fingers pointing pretty quickly into the Q and A session with the media...

Again, there is no bigger fundamental even than Trichet tomorrow... it is imperative you tune in and watch.

EUR/USD:

I don't really have much to say about the euro right now. We'll be in a fairly tight range until tomorrow morning... it's very unlikely we'll see any big moves before then.

I will certainly be flattening out as we lead up to Trichet... I'm not taking any useless risks and I suggest you do the same. Yesterday you saw the power a central banker has to move the market... Trichet has this same power.

Overall I'm still bearish on the euro and I will continue shorting the rises. Upside momentum is lacking at the present. But, we know what the markets are waiting for...

The market is ill-liquid right now and price action is hard to read, but I will offer these key levels based on current market conditions...

Key upside levels:

1.5454
1.5472
1.5488
1.5497
1.5504

Key downside levels:

1.5411
1.5401
1.5386
1.5363
1.5348

You know the drill -- be smart, don't overleverage, and don't take any dumb knee-jerk trades the next 12-hours.