Trade Team Update

Before we take a look at tomorrow's monumental event, lets do a quick re-cap... as we forecasted, German Factory Orders printed worse than expected and even printed negative. No big surprise there, but that data pretty much set the tone for the day...

The only way to go was down but the question was how far down do we go... that was up to commodities to decide. Gold and oil took another beating which sent the euro on a short break of the 1.5400 level before quickly recovering.

We made another attempted break of the 1.5400 level after NY closed and the euro has now recovered from that as well. So, that's one attempt of a 1.5400 break starting the new day today... keep your eye on that level.

ECB and Trichet:

The short-term life of the euro hangs in the balance tomorrow as we get the ECB's interest rate decision and more importantly, Trichet's monetary policy press conference.

If I have to tell you what's at stake tomorrow, go back to your demo account... I'm not going to waste precious time with that. I'm more concerned with probabilities and potentials...

As I said on Sunday, the euro is clearly at risk this week and the risk level jumps to a 10 out of 10 tomorrow. First of all we know the ECB's not going to move on rates. They are done hiking. The next move will likely be a cut, but that's not ready to happen quite yet.

The euro has formed a price action pattern that must be noted heading into tomorrow's press conference. The two press conferences Trichet had prior to tomorrows translated into a strong down move in the euro. It wasn't dollar buying, but it was profit-taking and then the normal stop hunting and stoploss triggering that goes along with a big extended move.

We've had two weeks of profit-taking, two weeks of euro selling and dollar buying, two weeks of stoploss triggering, and two weeks of shifting fundamentals that favor the dollar.

These factors make for a potentially chaotic day tomorrow and the proceeding days after Trichet's press conference. In addition, all market correlated variables are working against the euro and working for the dollar. Even the crappy FOMC statement didn't hurt the dollar.

My question is... what can Trichet possibly say or do to support the euro? He can't hype up Eurozone growth... even Germany is starting to show signs of weakness. Add that to the shaky situations in Spain, Ireland, Italy, and France and I can't expect to hear anything other than dovish rhetoric on growth.

At the last meeting Trichet told the markets that the rate hike to 4.25% would fix Europe's price stability issue. That was the main reason the euro tanked the last time he did a press conference.

Trichet is a cocky central banker and prides himself on transparency, credibility, and upholding the good name of the ECB. Do you think Trichet's going to flip-flop and say that the last rate hike isn't going to achieve price stability after he already told the markets it would? Not a chance in my opinion. Trichet is the most respected central banker on earth and knowing what I know about him, he's not about to put his status in jeapordy.

One of the reasons the euro has remained supported these past few months was because of Trichet's hawkish rhetoric on rates and inflation. In my view, he's already played that card and it won't work any more.

In addition, the euro has remained supported because of their strong fundamentals, the dollar's weak fundamentals, and most of all because of the Fed's 325bp's worth of rate cuts.

Those glory days are over for the euro. Sure, inflation is a major issue in Europe and isn't going anyway anytime soon, but Trichet's hands are tied and he won't be able to fight price instability with rate hikes.

The fundamental shift between the U.S. and Europe is in the works and there's not much Trichet or Bernanke can do about it. Don't mistake my words... I'm not saying the U.S. is out of the woods yet, in fact there are some sectors which will see further declines and weakness. What I am saying is, I believe we're entering a season of extended weakness with Eurozone fundamentals and a season of a more dovish ECB.

EUR/USD:

For tomorrow's circus sideshow in Frankfurt I'm expecting Trichet to be largely ineffective at supporting the euro. Of all the possible scenarios I have running in my head, not one includes him seducing the market into selling dollars and buying euros.

If I'm wrong, so be it, I don't really care, I'm still bearish on the euro and nothing will change my view at this point. I will short the crap out of the euro on any rise we get.

If it spikes, I'm shorting. If it steadily rises, I'm shorting. I'm adding shorts ahead of the meeting on any rises we get tonight and this morning. Even if the euro somehow makes its way back to 1.5700 or 1.5800, I'll stay short, it can go as high as it wants and I'm shorting it all.

It's just not cool to buy euros any more... kinda like how uncool it is to wear a mullett and a pair of stone washed jeans.

That being said, I certainly can't rule out some retracement after this extended move down, but as I've said all week, this will largely depend on what Trichet tells the markets. I really need to hear what he says and then make a game time decision when I see how the markets react.

It's imperative you watch his press conference tomorrow. Every market player on God's green earth will be watching and reacting. For you techies this mean's you need to minimize your candle charts and keep your eyes on Trichet's press conference and the euro's real-time price action and not on the pretty colored lines crossing or uncrossing. Deal?

I really have no other comments on the euro until I see what happens after 0830 EST tomorrow. It all hinges on Trichet at this point. Oh, and don't forget we have Pending Home Sales which I'm forecasting to print better than last month and print better than forecasted.

If you're margin is in a scary spot, you better get a game plan together now for how you're going to handle tomorrow... Trichet is not Bernanke. Trichet is animated, cocky, opinionated, and isn't afraid to speak his mind which is in stark contrast to Bernanke who appears timid, unassured, weak, and mostly incompetent.

It's for those reasons that the market responds to Trichet more so than it does to Bernanke. So, back to the margin issue... if you've unwisely got yourself overleveraged, you better have a game plan for tomorrow or else the market could hold you hostage or worse... Be smart please.