Trade Team Update

We certainly have a lot to cover today... it's almost hard to know where to begin as there's so many crucial things happening across the globe in all markets. So I give you my best attempt at tying everything together to hopefully make sense of things as they stand right now...

I suppose we should start with our good friend Jean-Claude Juncker. It seems he wanted to make a certain point abundantly clear... At 0640 EST today, Mr. Juncker told the markets:

"The euro remains overvalued in real terms".

That got the ball rolling for today's round of euro, gold, and oil sell-offs. Gold took a nasty beating today losing over $35. Oil managed to keep its head above the $100 level.

The dollar hit a 1-year high on the USD Index as the 80 level was breached. 80 is a tremendously key level on the Index and a level we must monitor closely. I see the potential to move to 82 or better as long as these conditions persist in the short-term. If the resistance at the 80 level sustains a clear break we could see some rapid dollar appreciation. Be advised.

Equities are continuing to make rollercoast moves... Wall St. had a good day, the financial stocks had a good day, and traders somehow forgot our banking and financial system is on the brink of collapse.

Beyond Fundamentals:

I don't know about you but I'm the type of person that I have to put my heart and soul into whatever I do and I have to learn as much as I possibly can to gain the advantage.

I've spent more time connecting the dots than I have trading this week. These are just my opinions and thoughts of course, so take them with a grain a salt.

At the risk of sounding arrogant, one place I started doing research was with my own market analysis and commentary. The past two weeks we've heard a lot about the "global recession" that the world is suffering from. The so-called global recession is being blamed on several of the issues we're seeing now, especially within the commodities market.

Recession -- After yesterday's abysmal ISM services data, once again the markets were talking recesion... not just the U.S. recession, but a global recession. These recession fears are real, not unfounded. Fundamentals point to true recession happening. The problem with this recession issue as it relates to the euro and the dollar is where things get a little weird and tricky.

I'm still firmly believing that a full-blown U.S. recession will negatively impact growth in Europe and will negatively impact the value of the euro and will negatively impact demand for the euro. Logic would tell you that a U.S. recession should keep the dollar under the gun and keep it weak against higher yielders like the euro, but almost by the day I'm more convinced the dollar is somehow going to come out smelling like a rose as the year rolls on.

And here's where I start thinking like a bank would think -- if the U.S. causes a global slowdown which would directly effect European growth, are the banks going to be as over-the-top bullish on the euro as they were in 2007? No way. Much of the euro's strength is built upon strong growth fundamentals, a very hawkish central bank, a central bank that so far has been very tight on monetary policy and hawkish with rates.

At the same time, the euro rose to stardom the past few years on the back of the U.S.'s weakening fundamentals and the fore-knowlege from the banks that the Fed would eventually have to slash rates. In addition, the EUR/USD was bolstered by rising gold, rising oil, lower bond yields, and skyrocketing equities markets.

But in today's market landscape, we need to paint a different picture... many of those factors that have compelled the banks to keep buying the euro and to keep pushing it higher against the dollar are turning the other direction...

We've said it a million times, but growth in Europe is slowing and will keep slowing -- the European fundamentals will be weak this year overall. The ECB while remaining hawkish on price stability, will have to cut rates later this year because Trichet eventually will have to address Europe's growth issues and the only way central banks deal with slow growth is to cut rates.

If we do fall into recession, commodities should level off or decrease in value. Equities may have a tough time this year. And if the markets decide to go heavily into risk aversion mode, this usually means they flock to so-called save havens like U.S. securities, and believe it or not, the USD.

I hope you don't think we're beating a dead horse here, but I just want to explain why our concerns about the euro are mounting as the year rolls along. I want to state our case clearly... and give you some food for thought.

I'm sticking to this analysis as one of the main catalysts for the rapid rise in the dollar, the rapid fall of crude and gold, and the meltdown we've seen in the markets.

The second to last paragraph there sums it up completely.

Tomorrow:

We have a big day tomorrow... Trichet speaks, Fed Kohn speaks, and we get key Trade Balance, Initial Claims, and Import Inflation data. This may sound shocking to those that know me well, but the USD fundamentals are of little circumstance to me right now.

There is such a ferocious demand for dollars right now, a crappy Trade Balance is not likely to hold the dollar back but rather just give another good short opportunity.

I believe Trichet is fully supporting this sharp decline in the euro therefore he puts the euro at risk tomorrow. As long as he continues to allow top ECB officials like Juncker to run his mouth and make comments that are unheard of for any central banker to make, he's going to keep supporting this euro drop.

Where was Juncker when the euro was at 1.6000 or 1.5000 even? Do you think it's a complete coincidence that Juncker makes shocking comments knowing the market has a severe appetite to buy dollars and sell euros? This is manipulation at its finest.

EUR/USD:

On Sunday I mentioned that there is a vicious demand for dollars which has helped lead to this massive dollar appreciation. Some didn't believe me. Fair enough. So, if you want some evidence, here you go:

This morning the ECB alloted USD$10B in 28-day fixed rate tender.

To put this in simple terms, the ECB auctioned off "Benjamins". $10 billion doesn't sound like it's a wild demnand for dollars, but you have to know the rest of the story... the ECB recieved $43 billion worth of bids for that USD$10 billion. That demand ratio between allotted amount and bid amount is off-the-charts. And it's wildly USD+.

Banks want cash, they need cash, and it's dollars they are after. This is a big reason why we can see the dollar gain 300 pips in a day on the euro.

As far as trading goes, I'm still shorting the rises and absolutely refuse to take a euro long. All of my downside targets are still intact and I see no bottom at all whatsoever forming.

Crude is a mess. To put things in perspective... we have a Catagory 3 hurricane headed for the oil rigs in the Gulf, we had mega crude+ data today, we have well respected traders saying crude is going back to $150+, we have OPEC cutting production by half a million barrels a day, and we have geo-political tensions all over the map yet crude continues to fall. I think you can see where I'm going with this... look for $100 or lower by Friday.

Gold is an even bigger mess and I see no support for gold. It's possible we see some buyers sub $750, but as I promised last week, gold is very likely to hit that $750 target and go even lower.

With these tremendously bearish conditions within the commodities market I can't possibly see a bottom forming on the EUR/USD. In my view it's going to take some shockingly strong euro fundamentals and some unexpected dovishness from the Fed to slow the dollar's rise.

There's literally not a single market correlated variable working for the euro right now. I see no signs or signals and I will not buy the euro.

On a different note, the NZD/USD short call is off to a strong start... just like the aussie call, the kiwi call was a pure fundamental play, following RBNZ interest rate policy. The RBNZ did a surprise 50bps cut and this is an even more bearish sign for the kiwi than first expected.

As for me, I took shorts at 0.6618, 0.6566, and 0.6564. I plan to hold them on a swing basis just like the other interest rate trades that I take. Those fundamental plays are just too easy to pass by.

Now if I see a potential meltdown in equities I may even look to add some heavy shorts on the USD/JPY, but we'll see on that one...

That's it for now. If I see any further developments in the market, I'll post. As always be smart with your trades and your risk because won't be getting back to normal any time soon.