Trade Team Update

We certainly had an interesting start to the week... the euro mostly stayed in a range that was pretty easy to trade -- buy the dips, short the rises, no-brainer stuff. The markets are mostly waiting for tomorrow's big data releases which made for some easy pocket-picking today and likely some easy pocket-picking during early Asia session.

Gold stay surprisingly supported today. Crude was up and down. Equities saw another round of losses as Wall St. panicked again about the state of the U.S. financial system, banking system, and credit conditions.

Bond yields continued to stay to the downside. First of all, low bond yields keep the dollar somewhat pressured against the euro and unable to keep pushing higher vs. the euro. Low bond yields also signal the market has an appetite for "no risk" securities as opposed to other asset classes such as equities, commodities, and currencies.

Plus, low bond yields are an important signal from the bond market... low yields can be the bond market's way of telling the other market that they think the Fed is either on hold or is going to cut rates again and that credit conditions are extremely tight. These signals from the bond pits are to be noted. We need to keep an eye on the 10-year and 2-year this week as we get key data.

Gold surprised me today as it made a strong recovery off of last week's lows and seems to be sitting comfortably at the $800 level. Even when the euro dropped 80+ points from its early morning high gold stayed supported. This is a bit of a bright spot because it's imperative gold stops sliding in order for the euro to gain any momentum to make a move up.

I believe crude fell victim to the tropical storm news reports flying around today. The forecasts for this storm are all over the place... some are saying it's going to be a hiccup while others are calling for it to form into a catagory 2 and then veer off into the gulf towards the oil rigs in the area of Louisiana and Texas. I suppose we just need to see how that event plays out and crude will follow accordingly.

Tomorrow:

More risk for the euro tomorrow. Two mega pieces of data could potentially do some serious harm to the euro. First we get German PPI which is forecasted to print cooler than last month. I'm not so inclined to believe we'll see a cooler print but the way some of the euro data trends have been going the last week, it's anyone's guess.

German ZEW I must forecast to print at expected, but likely to print below expected. Currently I'm running a 56% probability that we see a print below expectations and below last month's print of -63.9. We also get Eurozone ZEW which I'm forecasting to print below expectations and print worse than the German data.

The fact is economic conditions, growth, manufacturing, housing, industrial production, and credit conditions have been steadily deteriorating rapidly over the course of the summer. I believe there's a full recession happening in Spain right now and some of the smaller EMU countries have either joined Spain's recession or are just a few steps behind. Ireland is under real threat of recession and overall growth has been contracting in the Eurozone's heavy hitters like Germany, France, and Italy.

My views on the Eurozone's economy and near-term growth potential remains tremendously low and I believe investors will voice the same thoughts in tomorrow's ZEW data.

The euro's not the only one under threat tomorrow as we get Housing Starts, Building Permits, and PPI.

I believe we could see a PPI print at or slightly above expected. It's very important to the dollar that PPI prints hot. If PPI prints cool this may cause some of the market players to question whether prices are truly being based on to the consumer, and how this will then effect CPI, which then leads to how the Fed will handle monetary and rate policy this fall. A strong PPI print just serve to give the dollar another boost.

Housing Starts and Building Permits I am not very bullish on for tomorrow. I've yet to see any significant reason to have any confidence in the U.S. housing market. The fundamentals and the data doesn't support a positive view of housing nor does it give me any belief the housing market has yet to bottom.

Credit is tight, consumer credit is low, banks still have to crawl over broken glass to borrow money, and homeowners are slashing prices Freddy Krueger style just to get their homes off the market.

Lastly we get to hear from Fed Fisher. He's a hawk, pretty simple. I fully expect Fisher to talk up the dollar by either saying inflation is too high or by saying rates need to go up or by saying both.

EUR/USD:

I can't help but remain bearish on the euro. That being said, I did see signs of life in the euro today. Some of the price action showed that there was actually buyers and not as many sellers. And that there were likely some dollar-long profit takers ahead of tomorrow's data.

Tomorrow's fundamentals likely hold the euro's life in their hand. In addition to crude and gold. Right now things seem really crazy in the market and really crazy with the EUR/USD, but I don't see any craziness at all. This is a very simple process that's happening.

The fundamentals are shifting, the Fed and ECB are shifting monetary policy, and the market is shifting the trend as the fundamentals evolve, the Fed and ECB change monetary and rate policy course, and the markets seek the way towards equilibrium and order through price action that begins to behave properly.

Basically I'm going to keep shorting the rises and carefully picking entries to take a few pips on the long side. I'm holding all of my best euro shorts and will just keep shorting.

If the dollar-long profit takers decide to sneak up on us this week and the euro gets pushed up, I'll keep shorting those profit-taking rises.

Fundamentally the euro is under a lot of risk tomorrow. If the data prints overall EUR- and USD+ it would take a miracle from God to stop the market from selling it off again. Price action does show some potential to test the 1.4780 level, but we need the data and the market correlated variables working for the euro to make that possible.

Be smart with your trades over the next 12-hours. Do not overleverage and do not get yourself into a trade you're not willing to deal with at 0830 EST tomorrow.