Trade Team Update - - 7/17/08

Today's low liquidity and shocking news events in the other markets made for a wacky day for the EUR/USD.

USD fundamentals were all to the upside which kept the EUR under pressure. Oil took another beating as more banks and hedge funds liquidated net positive oil contracts in order to provide liquidity. In addition, there were crude options expiries today which only added to the mix.

Most of the wackiness was due to moves in the equities markets... the Dow was all over the place with earnings reports. Most of the news was not good on Wall St. Merrill Lynch suffered more billion dollar loses and the whole U.S. financial sector in general remains in serious trouble.

And really, it is those issues with U.S. banks that are keeping the EUR propped up against the USD. Wall St. is totally to blame for the EUR/USD continuing to hover around the 1.5900 level in my opinion.

We did see some great price action today... as I noted last night, a break below the 1.5800 level would take the euro to the 1.5780 level to knock out stops and then to pick up buyers. This is exactly what happened and exactly how it played out today.

The ECB certainly did a good job of complicating things today... Trichet told the markets flat-out that the ECB would achieve taking inflation at or below their 2.00% target rate in the medium-term. Then, ECB Wellink told the markets that the slowing Eurozone economy wouldn't ease the price instability and he pointed to the possibility of another rate hike.

Those price-fixers at the ECB can run their mouths all they want about rate hikes. In fact, let them hike rates again and I'll keep shorting the euro down because the more they hike rates the harder the Eurozone economy is going to crash and the further the euro will tank. Bring it on the rate hikes! Hike it up to 5.00% and watch what happens in the next 6 months... we will be laughing all the way to the bank at FXI.

Tomorrow:

The only semi important piece of data we get is German PPI which should continue to show inflationary pressures.

EUR/USD:

I'm not expecting any major monumental moves tomorrow but we'll likely see some more wacky price action and price swings as the market remains ill-liquid and as players in all markets are trying to figure what in the world they are doing.

Personally I don't like trading under the type of conditions we saw today. I LOVE trading when markets are extremely volatile but are moving in an orderly fashion. Today's price action gave the volatility I love but there was no order to it and this just doesn't work for me. I watched it all go down poolside today. I've learned my lessons trying to trade disorderly price moves and it's not worth it for me.

Now if you're trying to make sense of it all, just follow the euro's price action and the market correlated variables... the formulas are simple... if oil continues to take a beat down tomorrow you may see the Dow gain which would mean the EUR stays pressured against the USD.

The key is to watch how the markets respond to today's dismal news and dismal earnings reports from the U.S. financial sector. In case you don't realize this, when there's bad news and data for U.S. banks this is terribly USD-. Same thing would go for Europe. When we finally get the truth about European bank losses this will translate into the euro getting sold off. That's just how the correlations work.

As far as trading goes, I'm basically done for the week unless I see some surefire money trades. It would not surprise me to see the EUR finish strong tomorrow but I'll reserve anymore speculation on that until at least London opens.

You know the drill -- be smart with your trades and your money management. Do not overleverage and do not make any knee-jerk trades before the weekend. And please don't give any profits back to the market.