Trade Team Update

Today could be classified as another odd one in the markets... I think some of it might have to do with the fact that trade desks are likely under staffed with the summer session being here.

There's a severe lack of liquidity in our market and this is probably the case in the other markets. The lack of liquidity and the renewed risk aversion really makes trading a little more complicated because the fundamentals of the market continue to play out minute by minute but the typical amount of liquidity is not available to make the market moves more orderly.

We did see the euro make nice gains on the dollar in spite of terrible EUR fundamentals early this morning. Oil was also weak to the downside and gold's gains were limited. My opinion is that the dollar lost ground in light of the renewed risk in the equities market on the back of serious risk issues with U.S. financial institutions.

It's also important to note that the 2-year and 10-year yields got hammered today. This means that money flows are coming out of the equities markets and flooding into securities. The reason is clear: traders and investors are spooked and do not have much faith in Wall St. right now and have almost no faith in U.S. financial institutions.

This could spell some big trouble for the USD in the short-term if Wall St. goes into a Great Depression era mindset and starts making dumb knee-jerk moves. Keep an eye on this the rest of the week and see how it all plays out. Today the Dow lost over 230 points and has been officially called a bear market. None of this is good for the USD.

Tomorrow:

Tomorrow is a big fundamental day as we get some key EUR data and a Bernanke vs. Trichet showdown. That's the only two events I even care about. All markets acrossed the globe are focused on the Fed and ECB and they only have one thing in mind: future monetary policy.

That's all I'm concerned about. Early this morning Trichet delivered a speech but it was basically a repeat performance of last Thursday. Trichet was hawkish on inflation and dovish on growth, but repeated the phrase about how the last ECB rate hike should accomplish the ECB's objective on price stability.

Trichet didn't give the market's anything new today but tomorrow is a new day and it brings a new opportunity for both Bernanke and Trichet to manipulate the market's.

Bernanke will speak first at a testimony before the House of Representatives Committee on Financial Services. I'm almost certain he will be questioned on monetary policy, rate policy, and overall economic conditions. I am expecting the markets to react to what Bernanke says, so be on alert for this event.

Trichet will speak later in the day at some Eurozone party in Munich. I would expect Trichet to say nothing but positive and uplifting things about the Eurozone and would also expect him to point out the ECB's independence and how their hawkish monetary policy is helping the Eurozone economy. I do not expect to hear any EUR- rhetoric from Trichet.

We also get Initial Claims tomorrow and I'm looking at a USD- print on this data as well.

EUR/USD:

Once the news about the Iranian missle test hit the market last night the risk shifted off the EUR and back on the USD. The EUR was weak the entire week until that news hit the wires and then things quickly turned around.

We made two attempts at breaking the 1.5750 level but failed quickly and have not had any momentum to even make a third attempt at breaking that level.

If the market does build up the momentum to sustain a break of 1.5704, it will then need to break the 1.5692 level which could open the doors to go to 1.5670 level.

At this point I'm not looking at the market being able to break 1.5750. Price action is weak to the upside and we ran out of steam to keep pushing north.

I'm still overall bearish on the euro and I will keep shorting the rises and I will keep buying the dips until the market shows me to do otherwise. I believe more risk has shifted back ontot he dollar but I'm certainly not ruling out a test of the 1.5640 level again.

Be smart with your trades and do not overleverage.