Trade Team Update

To be honest I'm not even really sure what to say about all these events happening and resulting chaos in the markets. You can read some really great articles at the Financial Times if you're not able to watch the markets all day long.

For the rest of us that do this full-time I don't see a whole lot of mystery here and things are very self-explanatory. We knew this madness was coming and we know it's not going away anytime soon.

Tomorrow:

I hope I'm not catching the market madness that's going around the trade rooms of the world but I'm sensing there's a high probability the euro takes another extended leg down between tomorrow and Friday.

Tomorrow's big event is Trichet of course. He speaks right as London opens and he will be testify before a government panel on economic and monetary issues. This certainly puts the euro at tremendous risk because as we talked about before last week's rate meeting, I do not see there is much Trichet can say to help the euro. And that the higher probability is that his comments will hurt the euro. Same potential holds true tomorrow.

The other factor tomorrow will be the Crude Inventories. I'm still calling $100 or lower crude this week. We dipped below $102 and I believe if the data prints negative for crude that we can hit the target.

Gold certainly has more room to drop. Just a few days ago gold was able to hold onto gains above $800 but this is no longer the case. Should crude break the $100 level this could easily spark a strong sell-off in gold and then in the euro. Be advised.

EUR/USD:

Today's housing data printed strong to the downside, exceeding my forecast. There was almost no move against the dollar based on this abysmal housing news. It's signs like that keeping me shorting the euro because it takes away any potential to form a bottom.

The weakness in commodities will also prevent the euro from finding a bottom. Simply put, the euro will not stop falling until crude and gold stop selling off. If crude has to test the low $90's or high $80's, the euro is just going to keep falling with it until crude buyers emerge and the bulls are firmly in control of the game.

As far as trading goes, I've been using price action to make a certain move and it's been paying out beautifully. Basically, whenever we retrace back up close to a round number, I short. For example, on Sunday I shorted at 1.4406 and 1.4412. Today I shorted at 1.4195 and 1.4216. I've been taking those kinds of trades on those types of moves for the past week and a half and as I said, the results are been awesome. You may want to look for those opportunities as long as these types of conditions continue in the short-term.

Tomorrow's trading is looking to be volatile in all markets across the board. We could easily see another extended move with the euro tomorrow as all the big players to continue to re-position themselves, liquidate positions, suffer margin calls, redirect money flows, and pour liquidity into certain sectors.

My trades will be nothing but euro shorts for the next 20-hours unless the market shows me otherwise. If I see opportunities on other pairs like the yen I may even short those especially if the equities market moves in a way to cause pairs like the USD/JPY and EUR/JPY to fall.

There's a RBNZ rate decision this week and I will likely look for an opportunity on the NZD/USD, especially if they do a surprise and cut more than expected. If a shocking rate cut occurs you can be sure I'm going heavy short on the kiwi for at least 200 pips.

If these confusing market conditions are screwing with your trading you may want to look for those types of opportunities to take a trade that will actually follow the fundamentals and respond logically. Plus, trades like those based on interest rate decisions are great because they grow quickly and can be used to cover losses on another trade(s).

Even though the Bears are firmly in control this doesn't mean you can go heavier on your trades. I encourage all traders to practice strict risk and money management even when the trade seems like a no-brainer because things can turn quickly in this market.

Be smart the next 20-hours...