Trade Team Update

As far as the market goes we certainly had an interesting day to kick off the trade week... the EUR/USD was by far and away correlated to the fundamentals and not nearly as correlated to oil and gold as in times past.

The move we made to the 1.5520 level was driven purely by strong euro inflation data and weak dollar growth and housing data. If it wasn't for the upside surprise to the TIC data, I believe we'd be pushing the 1.5550 level or better.

Oil was back on the rollercoaster from hell today making wild up and down price swings... gold made some decent gains today which added to the euro's fundamental move to the top of the range.

Eurozone Core CPI came in as expected and the non-core CPI came in a tick higher than expected. If the market had any doubts about the ECB remaining hawkish on rates and for the possibility of a 25bps hike next month, today's inflation data should take care of those doubts.

Today's Empire manufacturing data was abysmal... all the idiots who are thinking the Fed's going to hike rates in September got a nice little wake-up call this morning with the weak Empire data and the subsequent USD beat down.

Bernanke spoke today but he didn't say anything to take the market surprise. We also heard from Richmond Fed Lacker... they usually keep Lacker stuffed away in a broom closet and here's why... he told the market's that the U.S. economy was in great shape and that there's really no economic issues to contend with. Back to the broom closet for Lacker...

Tomorrow:

Fundamentally we have a mega day tomorrow... we get things kicked off with the important German ZEW data. The German and European investor has surprisingly remained resilient the past few months so I don't expect a major downside surprise tomorrow. Should the market get a downside shock within the ZEW that will likely translate in euro weakness.

But, there are bigger fish to fry later in the day... we're talking economic data overload tomorrow:

Housing Starts (growth/housing)
PPI (inflation)
Building Permits (growth)
Current Account (growth/manufacturing/exports/currency valuation)
Industrial Production (growth/GDP)

Those are the big ones, but there are more like Core PPI and the Capacity Utilization...

Based on today's NAHB data I'll have to call Housing Starts to stay to the downside. I do not expect a big upside surprise on this data. PPI/Core PPI should print strong to the upside for the USD.

Just with the price of energy remaining off-the-charts high there's really no way producers are going to see a decrease in the cost of doing business. Look at the cost of diesel fuel? It's staggering. Our poor truckers and trucking companies are paying a premium just to perform normal business activities.

And then there's the Current Account... it's this piece of data that has keep year's worth of downside pressure on the dollar... it's one of the main reasons the dollar's worthless and has persisted in being worthless. I think we could get a slight upside surprise on this data just for the fact the dollar has been weak all year long. Now, should we get a downside surprise this will only further remove the notion the Fed is going to cut rates in September.

Industrial Production should show more gains than the prior data and I expect more of a USD+ print here.

Overall, I see one of two things happening tomorrow fundamentally... we get mixed data out of Europe and the U.S. and the market gets overloaded with numbers that it sits there like a deer caught in the headlights... or the market just decides to push the EUR/USD around with a fair degree of confusion...

EUR/USD:

It's early yet, so I really don't have much more to add at this point... my trading will likely be on the conservative side heading into tomorrow's data releases... I might not even trade at all.

I didn't take a single trade today and it wasn't even an issue just to sit and watch. The longer I play this game the more I realize what a powerful thing patience is. I didn't see a trade I wanted, I didn't see a price I liked, so I didn't take a trade... it's really that simple. I encourage all traders to learn to practice this kind of patience because it could save you from getting into some bad trades that go against you...

I do have some key levels to offer:

Key upside levels:

1.5488
1.5504
1.5526
1.5548
1.5571

Key downside levels:

1.5454
1.5438
1.5419
1.5402
1.5389

You know the drill -- practice strict risk and money management