Trade Team Update

Another interesting day in the markets... more fundamental smoke and mirrors, more ill-liquidity, and something new that I haven't seen in awhile, but we'll talk about that in a moment.

Today was all about GDP... as forecasted GPD printed strong to the upside showing the economy expanded by a healthy 3.3% verse an expected expansion of 2.7%. Looks pretty good, huh? Wrong.

That 3.3% represents gains in two sectors: exports and consumer spending. Last quarter when the USD was at its weakest levels and pushing towards a sustained break of 70 on the USD Index, U.S. exporters were living the good life as the worthless dollar translated into strong foreign sales. In addition, the stimulus checks contributed to the strong gains in the consumer sector.

So, on the surface this really looks like great news but if we were to strip out the gains made in the exporting and consumer sectors the economy would have likely only expanded by between 0.2% and 0.6% which is a far cry from 3.3%. The real GDP shows recessionary aspects when taken into consideration with the jobs and housing sector.

No matter though because Wall St. was sent into a state of euphoria this morning on the back of the strong GDP data. The Dow closed up +212 and we saw some downside pressure come of bond yields as money flows were sent into equities and out of securities leading to today's USD recovery vs. a euro that was looking very bullish prior to the data.

Before we move I also have to mention Initial Claims. The headline print was better than expected, but we still saw a print above well above the 380K level. The real story was the Continuing Claims which saw a worse than expected print by a wide margin in addition to seeing last week's data revised down. This claims data should make next Friday's NFP quite interesting...

New Correlation:

As I mentioned at the start of tonight's update, I saw something new today... not exactly never-before-seen, but something I've not witnessed in quite some time.

During today's London session and into early NY session crude and gold were on a mission, cruising through some decent resistance levels. They didn't go on a skyrocket to the top but over several 30-minute timeframes both commodities were laddering their gains which is a bullish price action pattern and not a false bullish pattern.

While crude and gold were making their gains the EUR/USD was sitting in an extremely tight range... the euro didn't move down, but it didn't move up either. Basically we had a fractured correlation and the price action was showing a real problem between the euro-gold-crude.

The problem was that the FX market wasn't buying into the moves commodities were making. Our market was viewing gold and crude's price action as a false bullish pattern and refused to take the euro up with them. This was blatant. Euro traders were not going to budge and the market said "nope, we're not going along for this ride".

This is to be noted. As I said, it's been ages since I've seen the EUR/USD watch crude and gold make substantial gains with no response. This could mean several things none of which are really a great sign for the euro in my opinion.

So now the key is to keep a really close eye on the EUR/USD price action and correlate that to moves in commodities as this will be a tremendously valuable trade indicator. If I see this non-responsive pattern get repeated over and over again this will cause me some considerable concern about buying the euro and shorting the dollar.

It could just be summer session antics and the symptom of ill-liquidity but it's going to be worth watching nonetheless.

Tomorrow:

We have a big fundamental day to close out the week. And don't forget almost no market players will be around tomorrow as it's the start of a holiday weekend. Expect extremely thin conditions and choppy price action!

Out of Europe we get the CPI Flash Estimate which I'm forecasting to print as expected. But be warned, a lower than expected print will likely put a serious amount of downside pressure on the euro. I don't believe the euro can handle weaker than forecasted CPI data tomorrow...

I'm forecasting all USD data to print USD+. Chicago PMI may come in weak, but I believe Core CPI and the Michigan Sentiment will reap the same benefits that retail sales, durables, and GDP have.

EUR/USD:

Just 24-hours ago the eur was display some incredibly bullish signs within its price action patterns. It did break above the 1.4800 level as I was expecting but as soon as we made each move above that level the momentum to keep pushing higher evaporated in the blink of an eye. Today's fundamentals and the sell-off that happened with crude and gold were the final nails in the coffin, sending us back below the 1.4700 level.

Now that those bullish price action patterns are gone I have to go back to a neutral bias for tomorrow's trading and hopefully the price action, fundamentals, and market correlated variables will give clues. If not, I'm not trading and will enjoy the weekend with piece of mind.

I really don't have a whole lot to see about the euro and trading at the moment. Tomorrow is going to be a ghostown in the markets as all the big players will be away and there won't be a drop of liquidity.

It is the end of the month so keep in mind that we could see profit-taking... if the bears want to close out profitible shorts this will be a positive move for the euro.

Be smart with your trades as we head into a holiday weekend. There could be some crazy shenanigans on Sunday when we open up...