Trade Team Update

As expected, Bernanke and the FOMC gave the markets an additional 50bps cut, dropping the Fed's key interest rate to a paltry 3.00%...

The market's first-wave, initial response was to drive the euro up 100 pips against the dollar, but as we indicated in our chat this afternoon, we'd then see a pullback and retracement of at least 50 pips, which has since materialized as we're sitting comfortably at the 1.4830 level...

There's just a few points I want to cover in today's update... some food for thought going forward...

Today's Fed action, in my opinion, will keep the USD under pressure in the near-term. In yesterday's update we discussed each possible scenario that could play out today and I won't take the time to re-hash as you can read yesterday's update if you like...

In addition, Fed Funds Futures is pricing in additional rate cuts in March,
possibly bringing the Fed's key interest rate as low as 2.25%!

So, what does this mean for the dollar? I'd like to use the CHF as an example of something I believe could play out should the Fed decide to keep cutting and cutting and cutting all the way down to 2.25% or lower...

For the past few years the Swiss have kept their key interest rate at or below the 2.50% level -- it was only last year that the SNB finally moved rates to where they currently sit at 2.75%, which is a major factor why the CHF has gained against the USD...

Now, when the Swiss kept rates hovering around the 2.00% to 2.50% levels, the markets beatup the CHF by using it as a funding currency and as a carry trade currency... the crazy thing about that is, Switzerland has always been a very fundamentally sound economy and very prosperous, with solid GDP and low unemployment rates, however, their artificially low interest rates took a damaging toll on the CHF... banks, investors, and traders used the CHF as a funding currency because Swiss rates were so low and it was cheap to borrow and cheap to repay...

These banks and investors would use cheap francs to invest in either higher yielding currencies and or higher yielding investments like equities, commodities, etc... you get the idea...

What I'm getting at is this -- should the Fed keep hacking interest rates, keep price fixing, and keep devaluing the dollar, I believe the USD could go the way the CHF went for the past few years, which is the USD being used as a funding or carry trade currency...

Think about it... these are some scary and current interest rate differentials:

USD and AUD -- 375bps in favor of the AUD
USD and NZD -- 525bps in favor of the NZD
USD and EUR -- 100bps in favor of the EUR
USD and GBP -- 250bps in favor of the GBP
USD and CHF -- 25bps in favor of the USD

In this market, the money flows to where there is a higher rate of return and right now, there are many other places to get a higher rate of return...

Now, I'm not making any predictions that the dollar is going to turn into a carry traded currency, but I truly believe this is a real potential should the Fed keep on this super rate cut cycle... with those interest rate differentials as they are presently, why would the banks buy up dollars, especially if the Fed is just going to keep going lower with rates? Maybe I'm thinking too logically here, but it just wouldn't make any sense to say buy dollars and sell-off Aussies when there's a 375bps interest rate differential...

Moving on...

Today's action left some traders scratching their heads, wondering why the euro couldn't sustain a break above the 1.4900 level... well, please keep in mind we have a mega fundamental release -- NFP.

Now that the banks have gotten today's FOMC out of the way, the next hurdle before we make any bigger, extended moves is Friday's NFP... I believe the banks are formulating a gameplan and are likely saving their heaviest firepower for Friday... in addition to NFP, there's likely an option expiry on Friday morning, after NFP, at the option barrier of 1.5000...

We'll talk more about NFP tomorrow and as we run-up to the data release... but as far as trading goes, it's the same old story I've been saying for the past two weeks... I'm staying euro long at this point -- cautiously long -- playing the market tight on the intraday, and keeping my best euro longs from the 4385 to 4658 level open at this point on a swing basis...

We could certainly see some more retracement between the 0300 and 0700 EST timeframes as the market may want to allow the euro to correct a bit, then buyers will re-emerge to pickup better entries...

Can we go to 1.5000? At this point, I believe it's possible... I have to imagine there are some big stop sets between 1.5000 and 1.5020, and experience tells me the banks and brokers will do what they can to run stops and trigger stops... that being said, let me repeat that I'm playing the intraday cautiosly long and certainly not loading the boat and blindly expecting 1.5000 to show up on our doorsteps by Friday...

As always, please practice smart and strict risk/money management the rest of this week... keep your margin in check...

Today's price action for the euro was correlated to the Dow, gold, and oil, so let's keep our eyes on those market correlated variables as we trade tomorrow... fundamentally, we have another huge day tomorrow, so please prepare accordingly... bear in mind, as we said, the market may be holding it's heaviest fire power for Friday...

Lastly, if you're a yen trader, stay strapped in because your rollercoaster ride from hell could just be getting warmed up in the near-term...

Trade Team Update

Because of the Fed's emergency rate cut last week, the market analysts and economists have been thrown for a loop as to what Bernanke will pull out of his bag of tricks tomorrow... I will not offer any speculations on what Bernanke will do, but I've been preparing accordingly and have tried to position my accounts for the "worst case scenario."

Now, the "worst case scenario" can certainly carry different meanings to different traders, but to me, whatever the Fed does tomorrow is the worst case scenario, of which I see three worst case scenarios... so, lets take a look at each one...

And just as an aside... you might be wondering why I have three possible worst case scenarios... well, as a trader, economist, and a taxpaying U.S. citizen, the only best case scenario for the U.S. economic situation is for the Fed to begin raising rates, for the gov't to begin reducing the deficit, and for our trade balance to shrink and our GDP to expand, but this is a different conversation for a different time...

Worst case scenario #1:

25bps interest rate cut -- a cut of just 25bps would be just half of what the market is forecasting, and this would be slightly shocking to all markets, including our market... the equities market will likely take a hit and not only see stock sell-offs, but would also see less money flow into stocks, which would turn the USD supportive against the EUR. I think the dollar would actually gain some ground back on the EUR should the Fed only cut by 25bps.

Worst case scenario #2:

50bps interest rate cut -- all markets are forecasting and expecting a full 50bps cut from the Fed. Should the Fed come through with what the markets want and expect, I believe the equities markets all around the world would react very favoribly to this move, more specifically, the Dow and S & P would respond with upward gains and momentum, which would then correlate into the EUR gaining against the USD. In addition, should the Fed cut by 50bps, the interest rate differentials would then turn into 100bps in favor of the euro vs. the dollar... this cut would bring the Fed's rate to 3.00% against the ECB's rate of 4.00%... I think it's quite significant to have a full 100bps interest rate differential between the EUR and the USD...

As you know, bank money flows to the nation that offers the higher rate of return, so I believe would could see renewed upward momentum and upward gains for the euro vs. the dollar. I really cannot imagine why banks would buy up dollars and sell-off euros with a 100bps interest rate differential... of course, we can't always depend on logic in the spot FX market, but the Eurozone now offers a better rate of return and it actually pays to hold euro longs, which is something traders look upon with favor.

Worst case scenario #3:

No interest rate cut -- yes, I absolutely believe there's a reasonable probability that the Fed will keep rates on hold tomorrow. I think it's a distinct possibility because of the emergency actions the Fed took last week... Bernanke's move, in my mind, diminishes some of the need to hack up rates any further tomorrow...

I believe a no cut would be tremendously supportive of the dollar vs. the euro... you see, concensus continues to grow that the ECB will eventually have to cut rates later this year and I am one of those that feels this way... M3 money supply is falling in the Eurozone and that will put less inflation pressure on the ECB... plus, I think we'll see the Eurozone's CPI come down from the highs of 3.1%, but lets not get off track here...

Should Bernanke hold rates steady, this would be a tremendous shock to all markets... our market does not handle shocking interest rate policy with any degree of emotional stability... a no cut could easily send the EUR/USD falling back to support levels between 1.45 and 1.43 in the near-term...

If the Fed were to hold rates tomorrow, global equity indicies would take a hit and I think we'd see some intense sell-offs and losses, which would naturally lead to the euro dropping against the dollar, due to the correlation between the EUR/USD, the Dow, the S&P/500, the S&P/500 and Dow futures, and the EUR/JPY (yes, the connection can run that deep). Then, we'd see traders begin to liquidate gold and oil positions, and possibly take short positions on those commodities to catch the down move, and those short positions in gold and oil would basically equate to taking long USD positions, which would then correlate into more USD support vs. the EUR...

A no cut would lead to some big, nasty crap hitting the fan in all markets, and ultimately I could see the dollar coming out of this smelling like a rose...

Fed psychology:

First, there's quite a bit of speculation that Bernanke made a knee-jerk reaction to last week's global equities sell-off, which was triggered by the nutjob trader from SocGen in France. So, to save face on his move to do an emergency rate cut Bernanke could certainly give the markets the 50bps cut they want, and this would be his way of saying, "last week's cut had nothing to do with the equities issues."

If Bernanke wants to send the markets the message that his biggest concerns are the U.S. economic situation and the issues within the credit markets and with the bond insurers/bond rating agencies, the FOMC will likely "vote" in favor of the 50bps cut. Of course, that cut will do zero to stimulate the economy nor will it offer much relief to the credit market and the banks, again, that's another issue for another time... but at least it would help Bernanke and the Fed save some face...

A 25bps cut or a no-cut could and probably would send our market the message that the Fed is growing more and more concerned with U.S. inflation and less concerned about what's happening on Wall St. This perceived concern about inflation would be very supportive of the dollar vs. the euro. You see, much of the euro's strength against the dollar is due to the fact that the ECB is so hell-bent on keeping inflation under 2%, which equates to tight monetary policy and hawkishness on interest rate policy...

The Fed and the ECB operate on opposite ends of the spectrum... Bernanke and his henchmen at the Fed are nothing more than subservient slaves to Wall St. and the trillion-dollar banking conglomerate that basically control governments and world markets, and because the U.S. still has the most powerful influence over the global markets and global economies, the subservient slaves at the Fed must do two things:

1. Manipulate markets
2. Price fix

Market manipulation and price fixing is accomplished through the Fed's monetary policy... if you want a good example of what price fixing is, look at what happened when Bernanke cut rates by 75bps last week... that move "fixed" prices on all of the equities markets and kept them from continuing to sell-off... I could give hundreds of examples, but you get the idea...

Now, the ECB has a totally different mission and mandate, which is ensuring price stability -- Trichet is almost to the point of being neurotic when it comes to inflation and price stability, but you have to understand why... the German Bundesbank is very influential, and Europeans, especially Germans still remember the days of having to cart in heaps of cash to buy milk and bread... so because the ECB is coming from that angle, they are naturally going to be very tight on monetary policy and less likely to ease on rates even when growth begins to suffer, which is and will be the case this year... so as I said earlier, this is one of the main reasons why the euro has been so strong against the dollar for the past few years...

EUR/USD trading:

All possible scenarios for what could happen are stated above... now, how this translates into trading is a different story because no one truly knows what the Fed is going to slap us with tomorrow...

On last Friday's and this Sunday's updates, we gave the key level, on the downside of 4680 - 4660... it hit 4660 right on the dot on Sunday and has since move towards the top of the range, but unable to breach the 4800 level...

Clearly the market has fallen into a "wait and see" trading range because the banks are speculating just as much as the rest of us and will likely need to see what the Fed decides tomorrow...

It would not surprise me to see some movement out of this range as we draw closer to tomorrow's decision... don't forget that we have key GDP data tomorrow morning, plus, some banks may try to square positions ahead of the FOMC decision and these money flows could cause some movement...

As far as trading goes, I grabbed a 4794 euro short yesterday and will certainly hold this trade, unless of course the market moves against me, in which case the trade will be closed for +1 pips and I may look to re-enter short at a higher position...

On the long side, I am still long from 4385 and will hold all longs that are still in profit below the 4700 level... other than that, I've spent this week trying to flatten out and free up margin just to protect against the unknowns... this is not a situation where I really want to get caught going the wrong way because tomorrow could be monumental...

I'd really like to grab some better euro shorts should the market go up and give an opportunity to do so... as mentioned above, I think in the end of all this the dollar could come out smelling like a rose, even though fundamentally and logically it shouldn't be that way...

I encourage you to do your own analysis of the market and weigh each possibility against the other... I could be way out in left field, but I wanted to at least give you my view on things...

Trade Team Update

As far as euro shorts, there's nothing fundamentally or with the price action that indicates taking shorts right now, but if you are short, the key thing you need to consider it what your margin sitaution is and what your crap-out point is... weigh the risks of holding those shorts and calculate how high the EUR/USD would have to go before it crapped-out your account. Risk management is essential right now!

The other question on trader's minds was what caused the EUR/USD to take-off early this morning... very simple... around 0130 EST rumors started flying around the wires that the Fed was planning on doing a 50bps cut before the 1/30 FOMC meeting and the market responded by pushing the EUR/USD towards the 4920 level before retreating back below 4900.

I know I sound like a broken record, but this morning was another clear-cut example of how all things interest rate related rule our market. The market is acutely focused on interest rates right now... in light of this intense focus on interest rates, the Fed, the ECB, talk of recession, etc., taking euro shorts against the market's momentum and the market's ideas on interest rates is a battle you're probably not going to win right now...

Tomorrow is a key day fundamentally... I'm not suggesting the market is going to make a 200 pip move tomorrow, because there's even bigger news later this week, but we get key PPI (inflation) and key Retail Sales (consumer) data tomorrow. So, which one will the market focus on more? I think the retail data carries a little more weight above PPI -- reason being, the Fed is more focused on growth than it is on inflation...

Inflation hasn't stopped the Fed from cutting rates. Slowed growth has caused the Fed to cut rates, so we need to pay more attention to what the Fed and the market is focused on... now, a very hot PPI number would certainly be USD supportive, but I'm not expecting a major upside surprise tomorrow with PPI. Retail sales, on the otherhand, should certainly disappoint to the downside. Should we see a downside disappointment, this will only further fuel the market's belief the Fed has to keep cutting -- even cutting as much as 50bps, which would bring the Fed Funds Rate below the ECB's key lending rate (scary).

On the manufacturing front, we also get the Empire Index, which will give us an important look at the current manufacturing situation, which hasn't been pretty the past few weeks...

Trade Team Update

As we indicated in yesterday's update, today would be a monster day, and that certainly was the case as Mr. Trichet and Mr. Bernanke took center stage...

On Monday we posted our key downside level of 4638, which was hit right to the pip and the euro has not returned to that level, in fact, any further dollar rally against the euro was stopped dead in its tracks today as Trichet continued his resoundingly hawkish tones against inflation and has left the door even further cracked open to raising rates in the near term to combat the Eurozone's 3.1% inflation rate...

Enter Chairman Ben -- during his speech this afternoon he basically told the audience the Fed would be cutting rates at the end of this month and then babbled on, in his signature shaky voice stlye that growth would suffer, housing and jobs are detiorating, etc. He painted a grim picture and the market immediately hammered the dollar as soon as his words hit the wires.

Bernanke's speech was one of the most pathetic displays of economic and monetary fortitude I've ever seen in my life. The man is a disgrace to economics, monetary policies, and to America. Bernanke is a foolish man to think that cutting rates is going to solve the issues facing America. His twisted monetary policies and weak pandering to Wall St., Paulson, and Bush have caused the dollar to crumble and have caused inflation and energy prices to soar through the roof and the American citizen is paying dearly for it. Bernanke is not qualified to run the unconstitutionally-formed Fed, let alone a 7-11.

Moving on...

As I said above, I believe any dollar rally has been capped for now. You know one of my favorite sayings -- all things interest rate related drive this market... we saw this in action today. I cannot stress to you enough that interest rates, interest rate policies, interest rate fundamentals, and interest rate futures are one of the keys to trading this market profitibly.

Basically we're looking at the possibility of the Fed Funds Rate falling below the ECB's key lending rate and this can only spell more dollar losses to the euro, should it materialize. And it is this possibility that drove the euro up over 1.4800 today, because the market is looking at the same thing we are...

Tomorrow:

We have some key data tomorrow -- U.S. Trade Balance, Import Price Index, and two Fed speeches (Mishkin and Rosengren). I believe the Trade Balance will be USD- tomorrow and should the Import Price Index come in at 0.0% or lower, this would also be USD-.

EUR/USD Trading:

Based on today's developments with the Fed and ECB, I have to stay long euro at this point. I can't see any other way right now. I can't fight against what I know drives the market, but right or wrong, the market will ultimately decide.

The banks needed to hear what Trichet and Bernanke had to say today and I think their message is rather clear, so I feel we'll see more upside for the euro in the near term. How high can we go? I'll have to depend on price action to tell me that, but I see these as some key topside levels:

4828
4854

I think if we can break above the 4854 level, we could easily push up over 4900. And that could certainly happen during tomorrow's trading sessions. While I'm euro long, I'm doing so cautiously and not going in heavy. But, I am not adding an new euro shorts at the present.

Be smart about your trading and leverage headed into tomorrow and next week. Do not overleverage your accounts!

Trade Team Update

Moving on to the EUR/USD -- we got more disappointing data out of the Eurozone today with dismal German retail sales and industrial production...

Tomorrow is a monster day with an ECB rate announcement followed by Trichet's press conference. I see no way Trichet can raise rates tomorrow even though he's been wildly hawkish the past few weeks. Of course, we can't totally rule out a rate hike and should be prepared for a surprise 25bps bump, which would certainly send the euro rocketing back up... the only real reason the ECB would raise rates would be to deal with their 3.1% inflation situation, which is well above their 2.0% target rate.

But, with the Eurozone's growth set-up to take a big hit this year, I doubt Trichet would cause even more reasons for growth slowdowns by raising rates, but again, I'm prepared for whatever Trichet throws our way tomorrow.

We also hear from Bernanke tomorrow afternoon and he will be talking about monetary policy and economic outlook during his speech. The market will be watching intently for any clues or signs as to what Bernanke will do at the next FOMC meeting later this month.

Trade Team Update

Lets first look at the EUR/USD to discover why we're trading in such a tight range the past two weeks, then we'll look at some interesting and somewhat "confusing" market happenings...

As we noted on Sunday, this week is dominated by Eurozone fundamentals, with a few big U.S. fundamentals here and there, plus Fed and ECB activities towards the end of the week...

In the fall we started calling to your attention that the Eurorzone would begin seeing weaker fundamentals and slowed growth beginning in 2008. So far this week, for the most part, the euro fundamentals have disappointed to the downside...

Investor confidence is down, consumer confidence is down, retail sales were well below expectations, and although German factory orders beat the forecast, they were still below last month's numbers. Obviously, these factors are very EUR- and have kept it underpinned and in a tight range against the USD so far this week...

The other factor I see for the tight range is that the banks and the market is waiting for Thursday's ECB interest rate policy decision and Trichet's press conference. Eurozone inflation is hovering around 3.1% right now, which is well above the targeted inflation rate of 2.0%. Plus, Trichet has been over-the-top hawkish about fighting inflation and has even hinted at a possible rate hike on Thursday. I really believe the banks have taken notice of his hawkish rhetoric and are likely waiting to see what he does on Thursday before they make any big moves...

So, those are the key reasons we're in such a lame range... now, lets look at the other correlated variables...

Gold -- this commodity is flying through the roof, making all-time new highs and skyrocketing towards the $900 level, but the question is, how come the euro is not following in lockstep as it normally does? If my reason is correct, the answer is very simple... one of the "other" reasons investors buy gold is to hedge against inflation, particulary U.S. inflation.

Now that the Fed is finally admitting that the U.S. if facing inflationary pressures, gold is being bought to hedge against this inflation, and not so much because the dollar is weak, which is why the euro is not moving in tandem with it. And it all boils down to the fact that U.S. inflation is USD+ as it could keep the Fed's hands tied from cutting rates and will possibly make them have to raise towards the end of this year. So, this is my reasoning why gold and the euro are not strolling hand-in-hand through the fields together...

10-year Bond -- the 10-year benchmark closed at 3.78% today, which normally would be very USD- and would help push the EUR up. This has not been the case, and I believe it's for the same reasons why gold and the EUR are not moving in tandem. Securities are being bought as a hedge against inflation just like gold is.

Dow -- the Dow is just a flatout mess right now. Typically a falling Dow is USD+ and I suppose the Dow's weakness has kept the euro from pushing.

If you're confused by what's happening, you're just another member of a large club right now... I see mass confusion and uncertaintly in all the global markets and indicies right now... markets are not behaving as they should, markets are erratic, emotional, and downright ridiculous...

Plus, based on seasonal patterns, this is usually the time of year the dollar takes some ground back from the euro, so we certainly need to take that factor into consideration.

My best advice is this -- if you're having trouble wrapping your head around all that's happening, don't trade. Just wait it out until things calm down and become more clear. Use this insanity as a learning experience and not a conduit for taking bad trades or losses...

I don't really plan on adding any new trades, not even intraday until I at least see what Trichet does and what Bernanke has to say on Thursday...

Be smart! Don't overleverage your account!

Trade Team Updates

The ECB's were on the warpath today with Trichet leading the charge, making some intensely hawkish comments on inflation and ECB actions to combat inflation/price stability, it's important we read and digest this stuff as the interest rate decision and following press conference is just a few days away...

ECB's Trichet Sees danger of 2nd round effects, inflation risks clearly on the upside - Effects Of Financial Market Crisis On Real Econ Remains open 1/7/2008 7:30:30 AM

ECB's Kranjec: Discussion of rate hike at last meeting was no empty threat
- ECB is serious about acting as needed.
- Says so far he has not seen much economic impact from market turmoil, but sees some deceleration.
- Notes in some Euro zone countries wage demands could lead to second-round inflation, noting latest inflation figures are not very favorable.
- ECB expectation for protracted hump in inflation is still valid, yet hopes that growth will remain around potential, which depends on the US. 1/7/2008 12:30:44 PM

ECB's Wellink expect 2008 GDP near potential, sees inflation easing later than desired - Says it is important to avod second round effects of inflation
- Says US employment data pointing to US economic slowdown 1/7/2008 8:46:56 AM

And from the Fed today:

Fed's Lockhart: Negatives in economy may be gaining momentum, sees modest growth in 1H 08, improving in 2H - Inflation troubling, but pressure will ease, says fall-off since Sept alone not enoung to remedy market.
- y/y employment growth has slowly considerably over the last 20 months.
- Says financial firms must disclose losses and consumer spending is weakening, but has not plunged.
- Inflation to moderate in 2008, but high oil price may mean outlook too optimistic.
- Says continued USD depreciation a risk.
- Syas the coming weeks could be telling for the markets; Fed myust be ready to "respond pragmatically" 1/7/2008 12:40:14 PM

Fed's Lockhart: Fed now balancing concerns about inflation with "serious" concerns about growth
- Q&A
- Fed has been attentive in making appropriate policy responses to economic situation.
- Says has done credible job tackling risks.
- Says Fed's role is to watch broad economy and does not respond solely to financial market events, says forecasts see drop in oil prices below $100, and should stabilize at lower levels, falling to $80-90 range.
- May have been slowness in seeing economic signs . 1/7/2008 1:06:00 PM

Fed's Lockhart: Keeping an open mind on what the next policy action should be; should not overreact to the Dec jobs number
- Q&A with reporters
- Will not exclude possibility of more rate cuts.
- Will not speculate on whether the Term Auction Facility (TAF) will be made permanent. 1/7/2008 1:34:24 PM

So we have a hawkish ECB and a rather dovish Fed today... Another "interesting" quote came from our buddy Henry Paulson who claimed core-inflation is being contained... yeah OK. Paulson needs to get his head checked.

Just some food for thought as we continue to slip-slide into uncertain and confusing times in the markets...

Trade Team Update

Fairly routine day in the market... the EUR/USD moved down this morning when the 10-year yield decided to get confident, but after it fell back to 3.90%, that in addition to gains in gold and oil helped keep the euro propped up most of the day...

There are a few happenings today worth noting: despite gold and oil hovering around all-time highs, the euro has been unable to sustain a break of the 4754 level. Now we did get robust factory order data today which certainly capped any big gains by the euro, but it will be interesting to see how strongly the euro wants to hang with gold and oil over the next two weeks...

Obviously, the big bank movers are waiting for tomorrow's NFP. Last month NFP was a yawner, but I am not expecting a repeat performance of last month... I anticipate the banks to throw some money around the market and I expect to see heightened volatility tomorrow.

And just a word on trading and calling NFP... a lot of traders who don't quite understand the market and how it moves believe it's as simple as saying, "I'm going euro long" or "I'm going euro short." Most months it's not that easy because of all the underlying variables happening within the market... at times, as you've seen us do in the past, it's been incredibly easy to make the call the day before and load up on the entries, but tomorrow is certainly not the case, as far as I can see at this point...

I will say that my overall bias for tomorrow's NFP is to be euro long and to stay euro long with my current positions... I did, however, pick up a euro short early this morning at 4764, which I'm holding at the present. I will hold this trade going into NFP unless the market moves against me at which time I'll have a limit order set to close the trade for +1. I'm long the euro all the way down to the 4540's, and again, will hold those longs going in to NFP.

Sometimes on NFP, things do not become clear until a few hours or even a few minutes before the release as the market and the banks show their hands through the price action...

If the truth is to be told tomorrow, my research is not showing robust employment numbers for the U.S. Granted, we had great Initial Claims data today, but this is not going to persuade me against my NFP research. And I still think ADP is meaningless and worthless.

PLEASE: do not trade NFP. If you're flat, stay flat. If you're euro long and have positive entries, set some limits to close for profits should the market drop, same with positive shorts you may have. But the smartest thing you can do for NFP is to get as flat as you can and to save your margin and your sanity by not trading NFP. I cannot stress this enough!

The other thing to remember with NFP, it's not always about the numbers... the big bank movers will be looking for certain things and the possibility for price swings certainly exist for tomorrow... plus, we have key unemployment data...

happy new year

First we'd like to wish you all a very happy, healthy, and profitible new year and sincerely hope 2008 is your best trade year ever!

Now that the holiday's are officially over and we've started a new quarter, it's time to get back to work and back to business.

As I told you in my economic calendar update a few days ago, I'm long euro and was buying euros when the market opened up after Christmas. The signs to be long are just too clear right now -- commodities skyrocketing again, dismal USD fundamentals, renewed falling bond yields, dovish and uncertain Fed rhetoric, the list goes on and on...

Today we saw more market insanity as the Dow did a re-enactment of the Hidenburg crash and burn while gold and oil soared to record highs. The Dow's dive pummeled the yen crosses as traders had to further liquidate carry-trade positions to cover equities losses. Speculators drove oil and gold through the roof, trading based on emotional, knee-jerk reactions against U.S. economic fears, inflation fears, and overall financial insecurities.

Normally the Dow nosedive would have brought the euro down with it, but oil and gold were on a northbound train to Cashville, keeping the euro propped up. In addition, the bottom fell out of the 10-year bond, as the bond market dropped to its knees once again to beg the Fed to cut rates at the end of this month.

We do have some key data tomorrow: German unemployment rate, the worthless ADP Non Farm Payrolls, Initial Claims, Factory Orders, and an important Crude Inventories report. I don't see much hope for the USD tomorrow, so I'll continue to stay euro long and buy dips as the market presents opportunities to do so...

Please take care to watch your margin usage the rest of this week, especially as we draw close to NFP. I do not expect to see a lackluster NFP like we had last month... I get the feeling some of the banks are going to have a play this go round...