Trade Team Update

Although the EUR/USD hit a 1-year low and the USD Index sat comfortably above the key 80 level, this was minor news compared to moves with commodities, equities, and copious amounts of gossip, speculation, and conjecture on the fate of Wall St.

The Dow was a mess today... early this morning futures were down and this put an intense amount of pressure on the yen crosses with the weakness in the EUR/JPY putting downside pressure on the euro. Adding to the euro pressure was more gold sell-offs, crude staying weak to the downside, and more USD euphoria as it was looking like the Treasury was going to bailout Lehman Brothers.

Long story short, the euro basically followed the Dow around today as rumor after rumor hit the markets about who was going to change Lehman Brother's diapers. You can read the rumors elsewhere if you're interested, I won't waste time on that.

It's my opinion that Lehman is unable to secure a buyer and the Treasury has stepped in to use their powers to find an international player to bailout Lehman. It will likely be a major player in Asia, the Middle East, or a some combo of both. You can count on the Treasury offering some special "backroom" incentives to sweeten the deal and prevent Lehman from collapsing.

The Treasury has used up their bailout ammo. There's no financial institution America that has the capital or resources to bailout Lehman. Word that Bank of America was going to do it is ridiculous in my opinion. BOA can't afford it plus they have their hands full with Countrywide.

So, we'll look for word of an international player to step in and we may hear this announcement at any moment. As far as how the EUR/USD responds, your guess is as good as mine. It should be USD-, but I'm not counting on logic to prevail.

Fundamentally it was another battle of worsts between the U.S. and Eurozone today. The winner was the Eurozone even though the euro didn't beat up on the dollar. Our already abysmally weak Trade Balance got even more abysmal today. How the dollar can continue gaining with a bleeding Trade Balance defies sanity.

Today's jobs data was crap. The labor market is in a full-fledged recession and has been since January. The jobs sector is in shambles and there's absolutely no light at the end of that tunnel. Retailers and sellers of discretionary goods are going to have a depressing Christmas this year based on the state of the jobs market.

The Import Price Index was heavily USD-. It printed well below market expectations and shows a rapid decline in high prices. Dovish members of the FOMC will really like that piece of data.

While we're on the subject of the a negative dollar, this piece of news came over the wires a few minutes ago:

"(US) Reportedly, the US gov't is mulling putting the GSEs $5.2T of debt into the federal budget - The report notes that a conclusion has not been reached."

This is shocking. That's the most USD- negative rumor I've heard all day. If the Treasury is allowed to add further burden on the U.S. taxpayer by holding them responsible for all $5.2 trillion of their fellow taxpayer's mortgages I can't possibly imagine how the market will be unable to respond negatively to the dollar.

In a logical world this move should hammer the dollar but as you know we're not operating under logical conditions right now...

Tomorrow:

We have a huge day to close out the week. Eurozone Industrial Production which is likely to print at or below expected. The big data is U.S. Retail Sales and the Michigan Sentiment. Based on my research I have to believe the retail data will print with an upside surprise. Those are my expectations.

Be advised that the EUR/USD may not be most the under control of the fundamentals. There are other bigger and stronger factors at play as we've mentioned above. For example, if crude finally cracks that $100 level that may have a strong pull on the euro.

Speaking of crude, we have to keep an eye on Hurricane Ike as it's on a bee line to the Texas refineries and is expected to hit the Houston area hard. Houston is a very important energy center and financial hub. It also floods very easy so if Ike does what it's expected to do it could get nasty and good push commodities up.

EUR/USD:

As of the writing of this update I have no plans to add any new euro shorts. Price action and order flow show a demand for euros this evening and these price action patterns are on the bullish side and something I've not seen in quite some time.

So now I need to keep watching and see how things play out because it's been awhile since I've seen the euro show bullish signs. I don't want to see any euro shorts go into drawdown at these lower levels. I will not let that happen.

With the level of heavy euro shorting that's been non-stop for the past few weeks we know there are a ripening harvest of stops sitting right above the 1.4050 level and higher.

Tonight or tomorrow would be a great opportunity to run those stops and allow the brokers to add to their netcaps and help make their weekly reports look good. Just some food for thought...

That being said, at this point I am not looking to take any euro longs. I need to see some real confirmation that this strong downside momentum is easing and that market players have returned to buy the euro.

Tomorrow's Friday so expected heightened volatility and wild price swings as we close out the week. If the Treasury doesn't announce their Lehman bailout plan tomorrow, they may hit the markets with the news on Sunday right before Tokyo opens. I guess it all depends on how fast they can broker a deal.

I didn't take a single trade today and I may not take one tomorrow in order to keep strict risk management on my accounts. For me it really all depends on how the price action is responding and how things play out on Wall St.

You know the risks that are in the markets right now, so please use strict money management under these extreme conditions.