EUR/USD Weekly Outlook 9/7 thru 9/12 2008 part 2

You may hear a lot of traders saying the euro can’t possibly go down any further but I’m not one of them. I do not believe in the bizarre idea of “overbought” or “oversold” or any of the other garbage traders and analysts perpetuate to support their bias.

The dollar will be “overbought” when the market’s appetite and demand for dollars slows down. There’s no chart or indicator on earth that can predict when central banks, hedge funds, banks, financial institutions, and traders are going to stop buying dollars and or selling euros. Anybody who thinks a line on a chart is going to reveal this is delusional.

For two weeks I gave a downside target of 1.4352 and last Sunday I said we’d hit that target during the week. The target was reached and exceeded by the time we closed on Friday. The next target I gave was 1.4188 after the break of 1.4352. The 1.4188 target was missed by 10 pips as we made a low of 1.4198.

Now fundamentally the dollar can be under some pressure this week as we get housing, retail, consumer, growth, and inflation data in addition to several speeches by Trichet. If housing and retail fall short of market expectations I would expect some pressure gets taken off the euro.

What will keep pressure on the euro are commodities, surprise rhetoric from the ECB, and the potential for an illogical reaction to news of a government bailout. I do believe crude will have to touch the $100 level and it could easily happen this week as long as market conditions continue staying aligned to support the dollar.

Not only do I believe crude can touch $100 I believe we can dip into the low $90’s. As far as gold is concerned I see no reason why it can’t test the $750 level or better. These moves may not happen this week but I see them happening in the short-term view.

There’s going to be a lot of gold bugs running around talking about gold going to $1000 or better by the end of the year but please don’t get sucked into these unsubstantiated conjectures. Most of those people have an agenda for saying gold’s going to $1000 or $2000 and it’s because they have something to sell.

Fundamentally, it’s going to continue to be a “battle of worsts” between the EUR and USD. Based on current data trends and patterns there’s a higher probability that USD data prints to the upside compared to how EUR data will potentially print.

Friday’s NFP was a mess just as we suspected it would be. Friday’s loss of 84K job brings this year’s job loss total to 550K. Unemployment jumped to 6.1% which is the highest number in five years. Why didn’t the dollar get hammered?

The dollar didn’t get hammered because the markets are viewing these job losses as a sign of companies positioning themselves for growth and recovery in 2009. If that logic and thinking makes sense to you, that’s fantastic. It makes zero sense to me and I don’t see how it’s a good thing to have an economy bleeding jobs. This means fewer consumers, less credit and growth expansion which only cause further job losses.

All I can really say is, as traders now is not the time to loose the mental battle or get sucked into the insane speculation by those who have a product to sell or by those who’ve already lost the mental battle and are talking out of another place than their mouth.

Please don’t go down that road. If you go off the deep end with the rest of the herd your trading is going to suffer, your ability to think and reason rationally is going to be hindered, and you’re probably going to drive yourself nuts. Is it worth it? If you’ve lost or you’re in the process of losing the mental battles to the markets go on sick leave and return when you’re ready to get back into the fight.

Trading:

The first thing we need to do is learn exactly what the Treasury’s game plan for Freddie and Fannie is and then to see how the market responds. Let’s first get past this event and that should make things a little clearer at least for the short-term.

I do believe quite a bit is riding on how things play out with the Treasury and the affects will be felt across the board in all markets and sectors of markets… currencies, commodities, equities, and securities. The Treasury’s bailout is not going to be called a bailout of course. The Fed and Treasury are going to spin this one in a way that makes it sound like the taxpayers are off the hook, that the federal government is not bailing out a financial institution, and that the Treasury’s function is to save investors from losses.

I’m sure Hank Paulson has brought in a top Madison Avenue PR firm to ensure this bailout is as smooth and orderly as possible. The former chief of Goldman Sachs knows how this game is played. Paulson knows what Wall St. wants, what Bernanke and Trichet want, and he knows how to manipulate the markets to meet their agenda.

As far as trading goes, my trading game plan will be largely dependent on what the markets are showing me, especially the key market correlated variables. I do not expect the markets to return to order this week or to function the proper way. I expect chaotic and illogical trading conditions and price action to continue behaving improperly.

I know some traders just want to be told to either go long or short and exactly where to go long or short and then exactly where to exit the trade and bank the profits. If your trading is fully dependent on me or anyone else giving you this info you’re going to pay a hefty price.

As I said, I’m taking one day at a time. I see no need to over think things, to succumb to outlandish conjecture and speculation, or to trick my mind into seeing things that don’t exist. I have no reason to think the intense volatility and massive price swings have to come to an end. I don’t see a bottom formed on the EUR/USD or on commodities. I can see it falling further this week and in the short-term.

We may need to see the 80 level on the USD Index tested before the euro can do any retracing. We may even need to go higher than 80. We may need to break the 1.4000 level on the EUR/USD before we find any real support. The point is, do not rule anything out.

The best weapon you can use to attack the market from a defensive position is strict risk and money management. Under these market conditions that’s all that we as traders have – smart risk management.

I haven’t made the smartest decisions the past seven weeks. If I could go back and do it all over again I’d do some things differently. That being said, I don’t beat myself up over moves I’ve made in the past, rather, I look to do things better and smarter in the future. All the mistakes and bad moves I’ve made this summer can be blamed on one thing – me.

I’ve hit my tolerance threshold of trader’s that are blaming everything and everyone on their losses, margin calls, and drawdowns. Unless somebody hacked into your account and placed buy and sell orders, nobody but yourself is responsible for the situation you’re in, bad or good.

It’s funny how traders are thrilled and quick to take credit when a trade goes their way but as soon as a trade goes against them they instantly look for somebody else to blame. If you’re going to play that flip-flop game play it somewhere else because this is not the place and you won’t find any shoulders to cry on here or anybody to accept blame.

If you think I suck and my forecasting sucks go somewhere else, I don’t care. If you’re tired of the crap on other Forex websites stop going there. If you’re tired of hearing the mindless insanity on CNBC, stop watching it. The point is, you’re a trader so start acting like a trader.

As many of you know I put a tremendous amount of time and energy into this market and into staying one step ahead of the market.

Bottom-line… market conditions can get crazier than they’ve been, the euro can keep tanking, commodities can keep tanking, and the Fed and ECB can continue saying shocking things that catch the market off guard as long as it enables the market to do their bidding.

Risk and money management disciplines are absolutely imperative this week. Expect the unexpected and be prepared to see actions and moves not witnessed by the markets in some time. Obviously the market’s not even opened yet but as things come into better view I will update accordingly.

Please be smart, do not make knee-jerk trades, do not overtrade, do not revenge trade, and be vigilant with your entry sizes. You know the drill and you know what’s at stake…