Trade Team Update

Another day, another bail-out... we might as well cover the latest news first... the biggest potential failure of all, AIG, was bailed-out this evening by none other than our good friend Hank Paulson. And just a reminder, Paulson said he wouldn't be putting the taxpayers at risk by bailing out AIG.

This bail-out won't be referred to as a bail-out but don't be fooled. The government is brokering an $85 billion loan to keep AIG afloat and they are taking control of 80% of the firm.

There's not a private sector firm on earth that has the money to save AIG. All of the details are not out yet, so I don't have much to say, but I believe the shareholders are going to get screwed on this bail-out and of course the taxpayers are at risk and under added burden.

Fed:

As you know by now the Fed held rates at 2.00%. That was expected by us here. We put out the no-cut call on Sunday and never flip-flopped even when Fed Funds Futures showed a 100% probability of a cut and just about every talking head was calling a 50bps cut.

The idea that the Fed could cut rates was driven by pure emotional reactions to the volatility of the markets and the meltdowns we had on Wall St. yesterday. Now is not the time to get caught up in these speculations and predictions.

Everyone voted to hold rates steady. That's what saved the euro from a massive sell-off. If the hawk Fisher had voted for a cut again I think the market would have hammered the euro, but all voters were on the same page.

The FOMC statement was tempered with dovish and hawkish rhetoric. The Fed was hawkish on inflation but as we can all see, there's a major round of deflation happening in the real-time as commodities continue to collapse.

The Fed was dovish on growth, as expected. There were no real surprises in the FOMC statement and Bernanke didn't give the market any special reason to buy up dollars.

I'm sticking to the call that the Fed is going to hold rates steady through the rest of the year unless we get some major catastrophe on Wall St. Speaking Wall St., they weren't happy with Bernanke's decision but they'll get over it. The fact that the Fed held rates has no real negative impact on Wall St.

TIC:

One of the pieces of the puzzle came together today. The data that shows foreign money flows into Treasury debt instruments during the month of July was only $6.1 billion vs. $55.0 billion expected. That's some of the most abysmal data I've ever seen. I thought it was a typo when it came over the wires. And the total TIC Flows were -$74.8 billion vs. $40.0 billion expected.

This is one of the explanations for why the USD has had to rapidly appreciate. Starting when? Mid-July. I don't think that's a coincidence at all. Without foreign investors funding the deficit and the U.S. government through buying bonds, the dollar would have to be strengthened in order to cover that major hit.

Now things make a whole lot more sense to me after finally getting the July TIC data. Bottomline is, that data is terribly USD- and I'm shocked the market hasn't responded, but I can understand why with everything else melting down.

It would be cool if the market could take a look at this TIC data and understand what a vulnerable spot this puts the USD in.

Tomorrow:

Yes the madness will continue tomorrow as we get Housing Starts, Building Permits, and Crude Inventories. I have found some signs within my research that indicate we could see a USD+ print on the homes data.

Crude Inventories is anybody's guess. Over 92% of all energy production in the Gulf is shutdown right now. Ten platforms are offline. And the last I heard, there was still at least one oil platform adrift and unaccounted for. Be advised this data should cause added volatility.

The fundamentals may not be the only factors the market is responding to tomorrow, so be prepared for that.

EUR/USD:

If you're even trading the pair, you're definately taking some big risks. There are no real established price patterns, trends, or strong support and resistance zones being established.

The euro was quickly rejected out below the 1.4100 level but I'm not calling that a clear sign of support. The price action is erratic and not at all behaving the proper way. This morning it took a 50 pip nosedive in under five seconds. Never saw that before.

As for my trading I'm just taking quick hits on the market and attempting to limit market exposure under these extreme trading conditions. I don't need to be sidelined but the risk management is imperative.

All market correlations have gone out the window. Crude continues to plunge and is showing no signs of stopping. I still believe we can see the $88 level or lower on crude. Gold has been doing well and lending support to the euro. If gold's support gives way and corrects it would likely bring the euro down with it.

Wall St. will continue to weigh heavy on our market and on the EUR/USD. The Dow finished the day up 140 points but this doesn't mean it will have a strong day tomorrow. We still have to get all the details from the Fed on AIG. It could be a wild ride. The bulls may get some control playing off this AIG news... we'll find out tomororw.

The euro has shown some bullish signs the past few hours but this could easily change once we get into later Tokyo and then when London enters the market.

If you're trading, be smart with your trades and manage your risk with precision. Do not overleverage or get greedy.