Trade Team Update

Once again what little price support the euro found the past two trading sessions was smashed under the weight of strong USD fundamentals. Both the Core CPI and CPI data printed hot and above expectations, just as we forecasted last night.

In addition, Eurozone CPI printed a tick below market expectations. Hot USD CPI and cool EUR CPI was the perfect storm for the dollar to keep chipping away at the euro and to keep erasing month's worth of euro gains.

The markets are already convinced the ECB is cutting rates in December. Today's data only served to justify their beliefs and as long as the fundamental data trends continue to print EUR-, I see no reason for this slide to come to an end.

The other factor obviously is the continued strong sell-off's with crude and especially gold. There's absolutely no way the euro can find support and traction to move up if commodities continue to make new lows on a daily basis.

Tomorrow:

The same advisement I gave for yesterday's trading stands for today's trading: the euro remains firmly at risk. Where a lot of the risk lies is the simple fact Europe is on holiday and European banks are closed until Monday.

Let's think about it... during the past year or so of trading the euro was on a strong bullish trend against the dollar. And what was the price action pattern we saw play out time and again during a U.S. bank holiday? The dollar would get hammered. So, the main reason I say all risk remains on the euro tomorrow is because now that the tables have turned the market has the perfect opportunity to hammer the euro while Europe is on holiday.

This will be the first European holiday we've seen in a long time while the euro is behaving bearishly vs. the dollar. It will be interesting to see what the market does and how it moves the EUR/USD. For me, it'll be a new experience and something that should provide valuable insights.

As far as the USD data is concerned, I believe one of the surprise bright spots we could see is within the Michigan Sentiment. This data comes out every two weeks. Think about what the price of fuel at the pump has done the past two weeks? It's plummeted dramatically. In my neck of the woods the price has dropped to $3.50 a gallon down from a high of $4.09 a gallon just four weeks ago. That's huge!

The other piece of key data tomorrow is the TIC flows -- net cash outlays for U.S. debt instruments by foreign investors. I believe we could see some USD positive data here as well. Reason being is because what I've observed with the bond yields...

Bond yields have remained relatively low. When bond yields stay low, this means they are being bought up. The Fed has been auctioning bonds like there's no tomorrow. And now even in light of the dollar's rebound bond yields continue to remain low. The 10-year has been unable to sustain a break of even the 4.00% level. Again, another sign of buying. Bond buying keeps yields low and prices high. Bond selling drives up yields and pushes prices down.

Now where the dollar could get hit is with the Industrial Production data. Forecasts are for production to show no gains and to stay flat. I have to agree based on my own research. In fact, it would not surprise me to see some negative production data.

Bottom line is, weak USD data will not likely hurt the dollar tomorrow and data that prints at or above will only serve to put more pressure on the euro in the short-term.

EUR/USD:

Really there's not much to be said about the euro... we know why it's weak, we know why it's continued to sell-off, and we know what it's going to take to stop the slide.

The problem is, there's nothing working in favor of the euro and all fundamentals, central bank monetary policies, and market correlated variables are strongly working against the euro. As soon as the euro finds support and buyers emerge we get another round of data that serves to crush support and send it lower.

My trading under these conditions is simply to add new shorts on the rises and then to play it tight in the ranges, taking 5, 10, or 20 pips and then getting out. There's too much risk in trying to find a euro long to hold on a swing basis without any clear support established.

We saw something very interesting today... it wasn't until literally a few short minutes after London closed that the market took the euro down. The bears couldn't make it happen while London's liquidity was still at play, but as soon as the traders in London closed up shop and hit the pubs, it was game on for the dollar and game over for the euro.

This trading strategy we saw play out is one of the main reasons I believe the market could use the opportunity to hammer the euro some more tonight and tomorrow.

That's about all I have to say right now on the euro...

Be smart tomorrow and do not overleverage. And, don't plan on taking any trades you can't get out of by market close as we could see some jaw-boning over the weekend.

The ECB tried to talk up the euro today... the ECB was talking about analysts are undervaluing Eurozone growth and how about how hawkish they are on price stability. Be careful here...