Trade Team Update

Today's market action could classified as text-book stupidity as far as I'm concerned... the stupidty started in mid-Tokyo session for absolutely no rhyme or reason and the stupidity persisted right through the close of NY.

Oil was the leader of the stupids... oil erratic price action sent the euro into another tailspin, dropping it about 200 pips and I now as I type this commentary I see the euro is attempting to claw its way back towards the 1.5500 level...

Gold was oil's half-retarded inbred brother today as it took another beating for no apparent reason. The Dow made a comeback of sorts today which didn't do anything to help the euro.

And then their was the 10-year making a healthy push towards the 4.20% level... clearly the bond market is screaming "inflation" at the top of its lungs. In addition the bond market has basically convinced itself the Fed is done cutting rates and is likely to raise rates sooner than later.

Now if you believe the Fed is going to raise in September you're either severly sleep deprived or severly unintelligent. Of course I cannot say "never" to anything in this market but with unemployment, housing, growth, and credit all still very much to the downside I see almost no way Bernanke can even consider raising rates.

The U.S. economy is not even close to being out of the woods yet. It's pure lunacy to even think the Fed is going to raise rates in just three months time because I don't see how the issues in the jobs market, housing, and the credit markets are going to solve themselves in that timeframe.

Plus, the Trade Balance and Current Account are in such abysmal states a rate hike now would severly jeapordize growth.

I believe Bernanke and the Fed are using their market-manipulating powers to give the USD a boost to not only ease the inflation issues a bit but to appease U.S. debt holders in Asia and the Middle East.

Philly Fed Plosser was running his mouth today about inflation and rates and was very hawkish. But, he's pretty much always been a hawk so the market didn't hear anything too shocking. If I had to pick any member of the Fed that I'd drink a beer with as opposed to cracking their skull with a Louisville Slugger it would have to be Plosser.

As I've said all week, it is the Fed and the ECB that is causing this market mayhem... it is the Fed and ECB causing all the markets to behave erratically and chaotically... they are toying with the markets and the markets are taking the bait.

Tomorrow:

We've had a wild week so far and there's no indication the insanity will let up as we get mega, ultra, monumental inflation data tomorrow. Tomorrow will be the true test of where the Fed really might stand on inflation...

And this test will come in the form of the Core CPI and CPI data... honestly, I don't even need to do any research or analysis on this one. If we're talking truth Core CPI should print at 0.5% or better. This means USD+. If the truth is going to be told and if the Fed is truly serious fighting inflation through monetary policy we'll almost have to see a hot USD+ print tomorrow.

One thing I cannot do with fundamental data is predict truth or lies. Nobody can. The only truth about fundamental data is that it's easily fudged and manipulated. Logical thinking would tell me we see a USD+ print.

We also get the Michigan Sentiment tomorrow which should print even weaken than the one released two weeks ago. The inflation expectations component, however, should print very USD+.

Don't forget that the G8 kicks off tomorrow in Osaka. My guess is that G8 is going to put the bulk of their focus on the inflation issue number one, then on commodities which are obviously fueling global inflation.

The G8 communique could contain some strong rhetoric to slow the oil market down and it may also urge central banks to get hawkish on rates. It is entirely possible the G8 talks up the dollar so be aware of this risk. I don't expect strong dollar rhetoric but I certainly wouldn't put it past a group of finance ministers to pull of those kind of shenanigans.

EUR/USD:

If the inflation data prints hot tomorrow you can expect another euro beat down fueled by lower commodity prices and higher bond yields. It's really that simple.

As far as trading goes I'm not changing my gameplan yet. I still have euro longs in drawdown but they are being well protected by my shorts I've taken on the slide down from the 1.5800 level.

We've dropped almost 500 points top to bottom this week. Yes, the market is do for a retrace back up to at least the 1.5600 level but there's absolutely no guarantees this will happen.

At this point I'm going to hang on to my euro longs that are in drawdown. This sharp drop is unwarranted in my opinion and there was really nothing fundamentally that changed this week to give the dollar such a fast boost.

Don't forget... in this market big, fast moves can be followed up with big, fast reversals. Again, there's no such thing as "always" in this market but I'm going to hold out on cutting my negative entries for now and see what the market wants to do.

The risk for today's trading (between now and market close on Friday) is that we drop another 120-180 pips to the downside... that's what I'm looking at for now.

As I type this commentary the market is still attempting a move back to the 1.5500 level but that momentum has slowed up a bit. If we can somehow sustain a break of the 1.5500 level and maintain this break into the London session this would be a decent sign the market will attempt to move higher to end out the trade week.

Later on tonight or early this morning I should have some key levels to offer when I get more clarity and the market gets more liquid.

we were looking at the amount of attempts the market was making to sustain a break below the 1.5400 level. We made 4 attempts and then went to the 1.5440 level. Then we returned back to make 4 more attempts before failing which is why I said we'd at least go back to the 1.5440 level which is precisely what we did about an hour ago. Keep your eye on price action attemps the next 20 hours of trading...

You know the drill -- be smart and don't overleverage. If you're already overleveraged get an exit plan together or stop trading until the market gives you an out.

And please don't be a dumb money trader...