Trade Team Update

I'm going to make this market re-cap short and sweet... we moved about 240 pips today. Why? Trichet. Why Trichet? He told the markets the ECB was strongly considering a rate hike at their July meeting because inflation is rising in the Eurozone and the governing council of the ECB does not see any relief to the price instability.

Trichet was wildly over-the-top on inflation/price stability. Dovish tones on growth were clearly lacking. Most of his speech was focused directly on inflation and on the ECB's potential moves to fight inflation.

Trichet gave the market a signal that the ECB is prepared to hike rates in July and he gave zero indication that a rate cut would be happening anytime soon. His words and his signal sent the EUR/USD from 1.5363 to 1.5601 in today's trading.

Do you now see the power of the central bank? Do you see the power of monetary policy rhetoric? Do you see how important interest rate policy is in this market? If you didn't realize this before, you better realize it now.

Bernanke dropped the euro 200+ pips with his rhetoric on inflation. Trichet sent the euro skyrocketing 200+ pips with his rhetoric on inflation. These are fundamental moves that are driven by interest rate and monetary policy.

I truly hope those that needed a wake-up call got it today. Everybody here should have been euro long heading into Trichet's press conference. We were long all night and I gave zero indicators to short and I did not close my longs until we broke the 1.5500+ level.

That's basically it. If you're looking for some deep, eloquent explanation for today's moves, there is none. Trichet pushed it up and commodities kept it up in late afternoon trading. It's that simple.

NFP and EUR/USD:

Tomorrow is the long awaited and much anticipated NFP. This morning I started getting the first requests that I always get every single pre-NFP... "should I go short or long?"

I've said it before and I'll say it again -- that is not how NFP works... it is not cut-and-dry, it is not black and white, it is not a 1-2-3 situation... you're dealing with fresh data and revisions. You're dealing economists forecasting and bank trader forecasting which often contradict each other. You're dealing with billions of liquid cash flowing in and out of the market upon news release. And, you're dealing with fudged and manipulated data that is comprised in illogical and fallable ways.

So, do you still honestly want to trade NFP? You think you can go toe-to-toe with the big bank movers? Be my guest... but, I'm not and never will tell anybody a trade to take on NFP. In the name of risk management, please don't trade NFP. If you must, trade it on a demo and maybe that will give you some of the thrills you're looking for without risking a margin call.

As far as NFP is concerned, the forecasts range from a net loss of anywhere from -42K to -68K jobs. The unemployment rate is forecasted to tick up. The overall market forecast is very USD- for NFP.

Based on my own research and based on current market conditions, I am not looking at NFP moving the market anymore than 150-180 pips tomorrow. At this point my research tells me to go in short. Again, this is just what I'm seeing and what my game plan is at this stage. Conditions can change and if they do, I will adjust with the changing conditions.

I do encourage you to do your own research and come up with a game plan and then give it a go on a demo to see how you make out. There's nothing wrong with that and it would be a good exercise. But please, do not throw real money into the market tomorrow morning.

I'm still overall bearish on the euro even after Trichet's comments. Trichet was talking tough but now he needs to back up his words with actions.

If the market does decide to take the euro up tomorrow I believe it could face some decent resistance around the 1.5680 to 1.5720 level. I'm not giving any key levels tonight because I don't want to do anything to tempt traders from taking any more entries this week.

Be careful and be smart...