Trade Team Update

We had a rather interesting day in the market... the market was very ill-liquid which gave us the choppy up and down price action we saw with the EUR/USD.

The price action we've seen the past 48-hours is very symptomatic of an ill-liquid market... in other words, the big players have mostly been on the sidelines this week, and you know exactly what they're waiting for...

In today's price moves we saw the EUR/USD fail at the 1.5724 key level on the downside and then fail at the important 1.5820 level on the upside. Throughout the day we made several attempts at sustaining a break above 1.5800, then we saw the market take a very fast 50-60 pip nosedive, then it bounced and went back up over 1.5800, then dipped, etc.

The price moves were extrememly choppy and moved at a very heightened speed and degree during the times of broader activity. The reason I know the market was ill-liquid and that we'd not breakout in either direction was for two reasons:

1. The big bank players and hedge funds typically will be inactive in the market prior to a major ground-breaking fundamental event. In this case, it's Thursday's ECB/NFP tag team.

2. Knowing the big players aren't utilizing their billions in liquid to move the market, it takes far less liquid cash to cause the market to move in either direction.

When the market is fully liquid it takes a greater sum of cash and stronger money flows to push the market a certain direction and to cause the market to build momentum behind that move.

In an ill-liquid market it takes far less cash and fewer money flows to move the market, and those movements are very erratic, but will almost never breakout to the top or bottom, but will bounced between key levels.

For example, in an ill-liquid market a news event that might only normally cause a 20-30 pip move can cause a 50-60 pip move, and then it would take smaller liquid money flows for traders to act on that move to push it the other direction.

Smart traders know when a market is severly lacking liquid and it's important that we too are able to spot those price action patterns because it can be a relatively safer way to make very good profits and ROI under those market conditions.

Tomorrow:

At 0315 EST we get a speech from Trichet. This is the last time we'll hear from him before Thursday's ECB event. Will he give us any last minute clues and signals as to what the rate decision will be? It's possible. All global markets will be listening and dissecting everything he says.

After today's strong euro data basically the entire world is convinced the ECB is raising rates by 25bps on Thursday. I'm not nearly convinced as everyone else may be...

First thing after NY opens we get the dumbest, most worthless piece of data ever -- ADP Non Farm Payrolls. ADP is calling for a net loss of -20K jobs. Many economists have upped their forecasts to NFP printing losses of -90K to -110K. As far as ADP goes, I don't care what that garbage says, it means nothing to me.

We also get Factory Orders which should remain USD-. After lunch we get speeches by Chief Liar Hank Paulson and Fed Mishkin. It will be interesting to hear what Mishkin has to say... he's pretty much an idiot so I doubt he'll say anything to help the USD.

EUR/USD:

Tomorrow is really the last chance the market will get to square up and position before the ECB/NFP. As I mentioned, all markets are fully convinced Trichet is raising 25bps.

I don't count myself as convinced. My probabilities of a rate hike are still under 75%. Germany is the only nation in the Eurozone that is thriving. The other three top nations, France, Italy, and Spain are suffering economic hardships and a serious economic downturn that will only get worse, especially if rates are hiked.

The past two weeks the European bourses have taken a beating as expectations of an ECB rate hike continue to rise. German bunds yields have risen which has been very EUR supportive.

France just assumed the EU presidency and Sarkozy wasted no time at all condemning the ECB for even considering a rate hike. You can be sure there is tremendous political pressure on Trichet not to hike. Will Trichet fall to his knees under the weight of political pressures like Bernanke does? We will soon find out...

As far as trading goes and the euro goes I'm not expecting any topside or bottomside breakouts before Thursday. I think we may see pockets of volatility between now and then at certain times, but overall I'm not looking at a downside break of 1.5680 and not looking at an upside break of 1.5850. That's the range we'll likely trade in until 0745 EST on Thursday.

Tomorrow will be the day you'll want to get your account squared up if you have a low risk tolerance and want to minimize your market exposure for Thursday and Friday.

There should be some good scalping opportunities over the next 14-18 hours, but certainly don't get into a trade you can't get out of in time for Thursday.

I really don't have much else to say about the euro and trading right now. Later this evening I'll have some key levels to offer when things pick up a bit.