Trade Team Update

With a total lack of fundamental data, lack of central bank speeches, and severly ill-liquid conditions acrossed the board we had a rather quiet day...

The markets were looking for anything and everything they could react to... today's flavor was tropical storm Dolly churning in the gulf and headed for Texas... this news stopped oil's slide around the $128 level and we saw crude push back up dragging the euro with it.

While the euro was trading around the 1.5850 level we saw the 10-year yield trading at very USD supportive levels, but did an about face after the euro broke above the 1.5880 key resistance level.

In addition, gold has been strong since Sunday's market open and this has served to keep the euro propped up against the dollar...

Tomorrow:

Once again we have a very light day as far as the fundamentals are concerned, which keeps the doors open for more USD weakness. It also doesn't help the Chief Liar Hank Paulson speaks first thing in the morning.

In my view the key event we need to watch is Plosser's speech. He'll be speaking about the U.S. economic situation and I surely expect Plosser to talk about inflation.

If you read yesterday's update you saw what some of the Fed's have been recently saying on inflation. Now, what the market needs to see and needs to hear is all of the Fed's key players singing the same song and reading from the same script, which is hawkish rhetoric on inflation, talk of raising rates, and general optimism for the U.S.'s economic future.

Should Plosser fail to deliver any USD supportive commentary, there's really nothing else that could hold the EUR back unless we get some surprise geo-political event.

EUR/USD:

As I mentioned in yesterday's update, I see no reason we can't and won't test the all-time high and then some. I still hold to this view as price action has been clear to the upside basically since the market opened yesterday.

In order to cool the euro down, the fundamental data we get between Wednesday and Friday must print EUR-, the Fed must support the USD, equities must stop sliding, all hurricanes or potential hurricanes must stay away from the central and north coast of Texas and Louisiana of course, and it wouldn't hurt to see gold sell-off.

Tall order, isn't it? I see the market correlated variables working in favor of the EUR right now and don't see anyway the USD can make substantial gains unless the wheels get put into motion to weaken the EUR.

That being said, yes, I'm still a euro bear because the Eurozone is on the brink of economic collapse just like the U.S. has suffered through for the past two years. Germany won't offer enough economic fire power to save Spain, Portugal, Italy, France, Greece, Ireland, etc.

I'm not ruling out a test of the 1.5900 level over the next few hours and will hold my shorts from 1.5930, 1.5927, and 1.5925 for this move. Should the 1.5900 level sustain a break, it will move on to test that key 1.5880 level.

On the upside, stops at the 1.5930 level were already knocked out earlier which means there will be more stops sitting between 1.5950-1.5980.

I may be looking to add some new euro longs should we correct down off these highs, but price action and the market correlated variables will dictate my next moves.

At this point I can't change my bias that we can see more upside over the next 24-hours of trading. The first test will be when London enters the market.

Later this evening I will post my key levels. So far we've stopped one pip shy of my 1.5934 key level and it's holding for now. Be smart with your trades... if you can't get a clear view on the market, wait it out. Do not overleverage and wait for the trade to come to you...