Trade Team Update

Well we certainly had heightened volatility acrossed the board today thanks to the commodities market... if today was a little frustrating with your trading, I was left feeling the same way...

Once again we saw the euro get punished for the sell-off's with gold and oil. Oil lost over 3% of its value today while gold dropped over $25... the euro simply didn't stand a chance to hold any ground against the dollar with those kinds of moves...

The dollar also got a boost with the 10-year pushing over 4.10% and the Dow making some healthy gains. Really, all market correlated variables were against the euro and working in favor of the dollar. Obviously we saw the end result with the euro dropping almost 200 pips.

Now, it's confession time... I took a loss today and I want to discuss it in the hopes of using this as a lesson for the traders, last night I was buying the euro on the dips. I made a few profitible trades, but the euro wasn't quite behaving as it should have been. I saw this, I recognized this, but I ignored what my gut was telling me and I thought I could squeeze in one more trade to snag a few quick pips... wrong.

I took a 1.5624 euro long... the euro went up to the 1.5640 level and I thought about taking profits as it inched over 1.5640, but then I got a little greedy and thought I could hold for a few more pips. Price started to fail. I took a 1.5644 euro short actually but didn't close my long, nor did I put a +1 on the trade. This was pure stupidity on my part.

The end result? I had to close the 1.5624 long for a loss at 1.5577. I took a euro short 1.5577 to cover my loss, which I did on the way down this morning but there was no need for me to even be in that situation in the first place. Pure and simple, I broke my trading rules, I went against my gut, and I went against what price action was clearly telling me.

I'm not beating myself up over it because I covered my loss and still ended the day with good profits. But, what does make me mad is that I broke my rules and it cost me. Not only did I break my rules, I went directly against what the market was telling me. I ignored price action, I ignored what oil and gold were doing at that time, and tried to fight against the market. Not very smart of me was it?

As a trade I have exactly two objects... and these are my own personal objectives...

1. I want to be right.
2. I want to be on the right side of the market.

Anyway, I wanted to communicate this to you for a few reasons... don't do what I did by breaking the rules. When I break my rules, it costs me. If you don't have risk and money management and trading rules, establish them ASAP. The other lesson is to not fight against what the market is showing you... if price action and the market correlated variables are all in agreement, don't fight the market because you will lose almost every time.

Tomorrow:

We have another mega fundamental day tomorrow... my forecasts are as follows:

German Retail Sales: EUR-
Eurozone CPI: EUR+
Core PCE: USD+
Personal Spending: USD-
Chicago PMI: USD+
Michigan Sentiment: USD-

The flavor of the week is still commodities... the fundamentals will likely take a backseat to commodities tomorrow unless of course we get a big upside or downside surprise with the data.

It's really very simple: should oil and gold continue to give up gains and get sold-off the euro will come down with it. Pretty much no-brainer stuff here...

EUR/USD:

As I've mentioned several times the past two weeks I'm still overall bearish on the euro, but this is for fundamental reasons that are yet to really begin playing out. The signs are there though and will continue to get more clear as the weeks and months roll along.

As far as trading goes, I'm sticking to the same exact plan -- buy the dips, short the rises. It's be a great plan for making great ROI, so I'm sticking with it until I see to do otherwise.

The euro went down to the 1.5490 level to take out stops as we indicated it would and now it's slightly recovering. I believe we're due for a bit of a retrace back up. I took a euro long at 1.5508 and will hold for now. I'm sure a bunch of nervous traders took some knee-jerk shorts sub 1.5500 which tells me the market will take the euro back up to knock out those stops... isn't it fun how this game works?

Key downside levels:

1.5501
1.5481
1.5462
1.5448
1.5423

Key upside level:

1.5524
1.5544
1.5558
1.5573
1.5589

I'm not expecting any mega price swings tomorrow, but no matter, I will be playing cautiously as we wrap the week up. I will not have any new open trades by the time the market closes tomorrow. I will not have any new trades that could be subject to a Sunday gap move.

Please be smart with your trades, your margin, and do not overleverage your accounts! Keep a close eye on the market correlated variables as we draw close to Tokyo's close and London's open and all during the NY session... use them as your guide.

Trade Team Update

As far as the market goes, today was totally dead with London and NY on holiday. We won't see any real liquidity come into the market until 0300 EST. It's possible we pull slightly out of this range during Tokyo, but I'm not expecting any earth shattering moves.

We do have some key fundamental events happening tomorrow...

Consumer Confidence -- how happy is the consumer? Not very as far as I can tell. Why would the consumer have anything to cheer about when gas is going up on an daily basis, home forclosures are up, employment is down, real wages aren't keeping up with real inflation, and big discounts from retailers aren't enough to lure people into running up credit card bills? USD-.

New Home Sales -- I don't see a whole lot of signs showing any significant recovery in the housing market. Building permits are still weak and that means new home construction is weak. Look at the home builders as well, they are still suffering. There are a few signs of life, however, and I believe tomorrow's data might come in at expected and not disappoint too far to the downside.

The Case-Shiller data should suck. German Consumer Confidence should come in at or slightly below expected, and German GDP should come in at expected.

EUR/USD:

I am still very much biased euro long on the short-term. I am still buying the euro dips and will be looking for strategic locations to short the euro on the rises.

Although the market is totally dead right now I still see signs within the price action that the euro has a higher probability of going up than it does of making a significant drop.

I'll post some key levels even though it's not as easy without the liquidity and volatility I like to see.

Key upside levels:

1.5778
1.5799
1.5817
1.5834
1.5858

Key downside levels:

1.5764
1.5746
1.5732
1.5714

Bias: euro long.

That's all for now. Be smart with your trades and your leverage use the next 12 hours or so... we won't be stuck in this 30-pip range for too much longer I suspect.

EUR/USD Weekly Outlook 5/25 thru 5/30 2008

All things considered it looks like we have another interesting week ahead of us... I'm fully expecting volatility and some great price swings which will allow us to capitalize on great profits this week.

Fundamentally, this week is all about the consumer, growth, and inflation for both the U.S. and Eurozone. In addition, we get key U.S. housing data and several speeches by various Feds.

As always, we'll cover each fundamental even in the daily updates and do what we can to be prepared for what's on the horizon. Friday should be interesting as we get the Core PCE Price Index. The Fed pays very close attention to the PCE data as it relates to setting interest rate and monetary policy. The Fed uses the PCE data to gauge overall inflation in the consumer sector.

If we're being honest, that piece of data should be over-the-top USD+. If the Fed is done cutting rates as I think they are, surely we'll need to see the truth starting to be told here... based on my own research and data, inflation is running wild like a freight train thats lost its breaks...

I estimate true inflation to be running anywhere from 7.5% to as high as 10%. Sooner or later the Fed will be unable to continue lying to the markets about inflation and the truth will have to be revealed and reflected in the data.

The cost of rice is up almost 90% year-over-year. The price for staple dairy products has risen anywhere from 25% to over 50% year-over-year. The price of wheat is up over 90%. And then there's the cost of fuel which is wreaking havoc on the U.S. consumer. Not just the consumer but also in the trucking and shipping industry.

Our truckers are getting squeezed by disgusting diesel costs. The majority of food products in the major supermarket retail chains are delivered by 18-wheelers. Now, in addition to the rising costs of food, food production, you add in the rising costs of what it takes to deliver the food to the supermarkets and you've got a recipe that is turning disasterous in the U.S. and other parts of the globe.

I'm sensing that the anger is starting to brew in the U.S. and it's just a matter of time before the Fed starts to turn its eye from credit and growth to the stiffling inflation situation. The average family cannot sustain if inflation keeps this pace. Real wages are not keeping up with real inflation. Our citizens that depend on social security benefits to survive are not seeing their monthly payments match, percentage wise, with what inflation is doing.

Do you see where this is going? I've given you some food for thought because I want you to think this through as you consider the market, trading, and the EUR/USD in the weeks and months to come...

EUR/USD:

Once again the pair will start the trade week in a percarious position. All of my upside targets were easily reached last week. Fundamentally, the USD is still weak and under pressure with little signs of a true reversal in that regard.

My short-term bias is to remain euro long, buying cautiously on the dips and adding strategic shorts along the rise back up. Don't forget the market will be ill-liquid until 0300 EST on Tuesday morning. All U.S. markets are closed on Monday and so is London.

Those thin market conditions leave a heightened probability for wild price swings. When the market is thin, especially when U.K. and U.S. banks are closed, it's easier for the other banks and traders to push the market in the direction they would like it to go.

This means my trade plan over the next 48-hours will stay on the conservative side. I absolutely do not want to get caught on the wrong side of the market nor do I want to get swept up in a low-liquid price move. I am patient and more than happy to wait until Tuesday to take my first trade if I have to... that doesn't bother me one bit. The longer I play this game the more patient I get to pick and choose my trades that fall inline with my strict trading criteria.

Overall, at this stage in the week I have a topside target of 1.5980 should the market continue to want to push the EUR/USD to the topside. Although it's very early in the trade week, I believe the market is still on the bullish side. In order to reach 1.5980++, we do have some hurdles to get over and there will be some big money bears trying to prevent the euro from making gains it honestly has no right to make...

On the other side, I have an overall bottomside target of 1.5520 should the market want to cap the euro's gains and do some downside testing.

Again, it's early in the week and the market's not even open yet, but I do have some overall key levels for you to be mindful of.

Key upside levels:

1.5784
1.5798
1.5818
1.5842
1.5868

Key downside levels:

1.5751
1.5724
1.5708
1.5692
1.5674

Again, things will be thin and it's imperative you're prepared to expect the unexpected. In addition to the potential for illogical price swings, expect to see wide spreads, times of boring ranges and a bigger extended move that can happen when you least expect.

Also, conditions will be ripe over the next 48-hours for the banks and brokers to run stops and trigger stoplosses which will help fuel an extended move in either direction. Please take the proper risk and money management precautions as we start the week.

Lastly, we must watch commidities this week... if gold and especially oil continue to make topside gains the euro will have to gain with them. I think oil is due to correct a bit but that's just my own opinion. It's certainly not showing many signs of cooling down. And if it does correct I'm sure there will be some geo-political event that pops up somewhere on earth to drive the price back up... this you can count on.

Be smart, don't make stupid trades and don't take stupid risks this week... it's just not worth it.

To those celebrating the holiday, be safe and have fun and enjoy this time with your families. To all veterans who have served at home and abroad, we certainly salute you and thank you for your service.

Trade Team Update

Although we didn't move a whole lot today, we certainly had some events happen to take note of... as I indicted yesterday, breaking the 1.5800 level would happen before you know it... this morning we made a high at 1.5814 before retreating over 100 pips.

Fundamentally, the euro was under pressure today as Industrial Production proved to dissapoint to the downside. This is no big surprise as we already know growth in the Eurozone is slowing... the data simply confirms this. As I said in yesterday's update I still think the euro is on the bearish side, and I say this in light of the fact we're making upward movements. But, we'll talk more about those issues later on in the update.

Oil did make a new all-time high around the $135 level. Gold made some gains as well, but we did see some profit-taking during NY session which put more downward pressure on the euro vs. the dollar. The Dow came back today, unable to break the 12600 level and this was very USD supportive.

Tomorrow:

Out of the Eurozone we get French consumer data and PMI data... PMI could certainly dissapoint to the downside. Overall growth, production, and expansion is slowing, based on my research, so I would expect the data to print at or below market expectations.

The most watched data will be Existing Home Sales... really, what else is there to be said about housing? It sucks and it's not going to get any better in the short-term. The market's not really looking for signs things are getting worse, this is well established. The market is looking for signs of hope and recovery. An updside surprise should prove to cap any euro gains tomorrow.

EUR/USD:

My 1.5800+ target I called was hit today and that's really all I was looking at and looking for this week. I hope you were able to capitalize on the profitible euro move up to that level...

The euro did as I forecasted it would and as far as trading goes, I'm pretty much done for the week... the last thing I want to do is give any profits back to the market taking a dumb trade.

I do have some key levels to offer as of the writing of this post...

Key downside levels:

1.5711
1.5688
1.5662
1.5648
1.5629

Key upside levels:

1.5739
1.5758
1.5774
1.5808
1.5828

Short-term bias: EUR long

OK, as always, be smart with your trades and your leverage. Friday is one of those days that traders seem to find themselves giving profits back made during the week, so be methodical with your trading between now and the time the market closes.

Trade Team Update

Well after a few days of boring ranges, we finally got a nice push out of that stagnant range and we're able to test some upside once again...

I think this alarmed quite a few traders based on the questions and pm's I was getting today. But I'm not really sure why this move back up has come as a surprise, though. Either people don't read the daily updates or they are easily forgotten, but for the past week I've been calling for a return to test the 1.5600-1.5800 levels and now we're seeing this play out right before our eyes.

To be honest, the panicky questions got really annoying today and it's as if some traders were completely caught off-guard by today's move. So, allow me to cut and paste some excerpts from yesterday's update as a reminder to those who either don't take the time to read or don't use enough brain cell power to remember them:

As I've said many times, as long as we stay supported above the 1.5350 level, I'm keeping my topside targets of the euro pushing the 1.5600-1.5800 levels.

I'm not ruling out further testing of 1.5600 this week, and beyond if the fundamentals and commodities continue to play out in favor of the euro.

OK, so lets break this down... what did the fundamentals and commodities do today? They moved in favor of the euro... gold made gains, oil made new all-time highs, and today's fundamentals overall were EUR+. What did the euro did? It came within spitting distance of 1.5700 and will likely go back there to test a break this week.

See how easy this is?

Also from yesterday's update:

I'm likely going to play the shortside a touch more cautiously as long as I see the probabilities remaining intact for topside testing.

And:

Further oil gains will also keep the Dow under pressure, in my opinion. Should oil keep the Dow under pressure, this will only serve to give the euro yet another price action boost.

Now, lets see... what happened to the Dow today? Well, it lost 200 points... and what did the euro do? It moved up almost 200 points bottom to top...

I try to do these updates in plain language, easy to understand, and as straightforward as FX commentary and forecasting can possibly be. I don't speak in circles and tell it how I see it and how I think it will play out.

If you loaded up on shorts, which is what most of the panicked traders I talked to did, that is your own issue to deal with. Why you loaded up with shorts and or went net short is beyond anything I can possibly fathom, but that's your deal, not mine. I tried to short it, but got +1'd three times, so guess what I did? I went long. Make sense?

Trade Team Update

We can pat oil on the back for keeping the euro supported against the dollar, as well as gold. Gold's price action isn't quite keeping pace with oil which is one of the main reasons we saw limited euro gains after London's open.

We didn't have any real fundamental data today which also helped keep us in a fairly tight range. Tomorrow is a different story, however. When Frankfurt opens we get an important German PPI release, followed by the even more important ZEW data.

German PPI -- I can't see any reason or basis for a downside surprise here. We likely won't match or exceed last month's print, but I'm not looking at major EUR- surprise on this one.

ZEW -- this is a piece of data that is more difficult to do specific research on and to connect all the dots to. But ZEW is critical because it's more closely correlated to ECB monetary policy. It would not surprise me to see a print at or below market expectations. Any upside surprises would certainly help keep the euro supported as it would give the market more confidence in an ECB rate hold.

PPI/Core PPI -- this is our big U.S. data tomorrow. The market is expecting a significant decline over last month's PPI print. I can't be so dovish on this one. With both oil, gold, and soft commodities remaining well supported to the upside, I don't see much relief for producers and don't see much evidence they would be passing on cheaper production costs to the consumer. The evidence is just not there to support this view. I have to forecast a print that's at or better than market expectations, should the truth be told.

Obviously, a cooler than expected print should easily keep the USD under pressure vs. the EUR.

We do get a speech by the Fed's Kohn tomorrow... Kohn will be speaking out the economic outlook, so we need to keep an eye on that one.

EUR/USD:

My overall bias must remain neutral for now. As I've said many times, as long as we stay supported above the 1.5350 level, I'm keeping my topside targets of the euro pushing the 1.5600-1.5800 levels.

As you know we hit 1.5600 today but could not sustain a break of my first key level at 1.5624. I'm not ruling out further testing of 1.5600 this week, and beyond if the fundamentals and commodities continue to play out in favor of the euro.

My trade plan will also remain intact -- short the euro rises and buy the euro dips. This plan will be executed with precision and discipline, based on current market conditions. I personally do not like to trade in these tight ranges.

I haven't mentioned this much lately, but it is imperative to keep a close eye on commodities this week, espeically oil. The euro has been more tightly correlated to oil than it has gold in recent trade days.

Gold has been on a slow recovery as of late. Should the market speed up gold's recovery and push it above the $930 level the euro should follow accordingly. A sustained break of $950 would be even sweeter.

Oil is a different story... there's no visible signs of oil topping out quite yet. Keep in mind I'm not a commodity trader, but I am of the opinion that we haven't seen oil's top quite yet. If that's the case, the euro and oil should continue to move in tandem.

Further oil gains will also keep the Dow under pressure, in my opinion. Should oil keep the Dow under pressure, this will only serve to give the euro yet another price action boost.

As always, please use proper risk and money management disciplines. We're due for a more extended move I believe. It is imperative you do not overleverage your accounts and work hard to stay on the right side of the market.

EUR/USD Weekly Outlook 5/18 thru 5/23 2008

Overall, we don't have a week of heavy fundamentals on the books, although there are some key pieces of data we need to focus on. Although we're a little light on data I don't think we'll need it to get things moving.

For the past two weeks we've been in a no-man's land type range and we're overdue for some heightened volatility and more extended moves.

This week out of the Eurozone we have producer, inflation, growth, and business/investor sentiment data, along with some ECB's on the speakers circuit. For the U.S. we have inflation, jobs, housing, and most importantly, the FOMC meeting minutes.

If you remember back to the statement the FOMC gave us after their last rate decision it was basically a piece of incomprehensible garbage and didn't tell the markets anything about anything.

So, all eyes will be on the meeting minutes, specifically, the markets will be looking for any signs and signals of future rate cuts coming from the Fed. I can't even begin to predict what the meeting minutes will say, but unless there's rhetoric that is hawkish on inflation and dovish on future rate cuts the USD will remain under pressure.

EUR/USD:

On Friday we made our move to 1.5600 and got rejected. That doesn't really bother me though, I don't see 1.5600 as a major resistance level. All we need is some decent liquidty and order flow and we should be able to get up and over 1.5600. How far up and over we go will all depend on the market's repsonse once we can sustain a break of this level.

Plus, there will be some good sized stops building above 1.5650 so it would not surprise me at all to at least see a move to this level to knock out stops. If we can get a good head of steam going and start triggering stoplosses there's no reason we can't test 1.5800 this week.

My overall bias remains neutral and my short-term bias has gone back to buying euro dips and now being more strategic with adding euro shorts. With the euro floating between 1.5400 and 1.5600 it's just in a really weird spot.

That being said, I'm looking at a slightly higher probability of some topside testing as opposed to downside testing like we saw the past two weeks. That drop from 1.6018 to 1.5280 cleaned out a ton of stops and now I think we're due to keep pushing up to test some levels above 1.5600.

That's about all I've got for now. As always, please practice smart risk and money management this week. Do not get in an overleveraged situation and do not make knee-jerk trades... this market will make you pay for doing that.

Trade Team Update

Fundamentally, we had a rather interesting day... today was all about CPI for the U.S. and France.

Not surprisingly, France's CPI ticked down a touch, which falls in line with the ECB's softer inflation tones. But the real story today was the U.S. CPI which also ticked down. This certainly caught me by surprise and I can't honestly see this is at all possible.

Now, I consider myself a halfway intelligent person, so what I'd like the Fed to explain to me is how inflation can be easing when food prices are up anywhere from 15% to 20%, and crude is pushing $130 a barrel, and the price of fuel at the pump is at highs never seen before...

Core CPI exlcudes food and fuel prices, and this came down and was cooler than expected. Fine, whatever. But even the CPI data that includes fuel and food prices was cooler than expected.

To me it's almost shocking to see this blatant data manipulation by the Fed. But not too shocking when you consider the Fed is an illegaly operating organization that is above the rule of constitutional law and is controlled by bankers, liars, and thieves who see fit to price fix markets.

I was expecting the dollar to come under pressure today after that data. Althought there wasn't an instant reaction, I think it's coming to be honest. I think this weak inflation data could put the market back on thinking the Fed's going to cut rates again and we could see the EUR make a move against the USD in the days or weeks to come... stay tuned.

Tomorrow:

Take one look at tomorrow's fundamental calendar and it will make your head spin. It's even too much for me... it's data overload and it's one of those days when I don't even really bother to research it or try to figure out in advance how to trade it. We're talking about 12 straight hours worth of key fundamental data...

But, let's cover a few of the key pieces so you can get your money's worth out of this update.

Out of the Eurozone we have growth and inflation data... growth may come in a touch weak and inflation should stay as is for the most part. I think the only real downside surprise could come in the growth data tomorrow. That being said, I'm not heading into tomorrow over-the-top bearish on the EUR.

Out of the U.S. we have all kinds of crap... production, inflation, foreign investments, housing, jobs, plus Bernanke. I really don't expect any USD upside surprise tomorrow either. Overall, lets just say I'm not going into tomorrow's mega data event over-the-top USD bullish.

I really don't have much else to add about tomorrow. Like I said, we'll be on data-overload and it's not worth the brainpower to even try to make sense of it all ahead of time. But, with proper risk management and depending upon price action and price patterns, tomorrow should be stress-free and fun to watch it all play out before our eyes.

EUR/USD:

Our downside testing and downside momentum has visibly slowed up this week compared to last week. Now this could mean a few things... the market could be taking a breather or we could be building some momentum to test the top of the range again...

I'm leaning towards the potential for some more topside testing... not 1.6000, but at least 1.5600-1.5800 level. I have gone back to buying these dips this week. I've been shorting the tops, as you well know, but I've also been adding select euro longs when we've hit a bottom.

For me, I see a higher potential to return to 1.5600++ than we do to correct below 1.5300. That's just me and just my opinion on what I'm seeing right now. You have to make your own trades and do your own analysis on the market.

Obviously you know what's at stake tomorrow... we could see some serious volatility and price swings, so prepare accordingly and only add new trades with caution and a good gameplan.

Trade Team Update

We did get a speech by Trichet today, but in my opinion, he didn't offer anything new to the markets and pretty much stuck to the same tune. He said -- While monetary policy has limited power in the short term to stem external price shocks such as the sudden increase in the relative prices of food and commodities, medium-term price stability can be delivered by preserving the firm anchoring of inflation expectations and by ensuring the absence of second round effects.

Basically he's saying rates will remain at 4.00% and I'm sure this gave the euro a bit of a boost in late NY trading. I still believe there's much Trichet or the ECB can say at this point to push the euro up and over the 1.5850 level and especially not back to 1.6000. I'm just not seeing it happen right now.

I still believe the ECB will have to lower rates in the second half of this year and the more that other market players begin thinking the same, the better it will be for the USD.

Tomorrow:

Today was easy... tomorrow could get hectic as we've got retail sales data, imported inflation data, plus we get Bernanke first thing in the morning followed by the Fed goon squad comprised of Warsh, Plosser, and Fisher.

Core Retail Sales -- based on my research, the retail sales data should be bad and should print below expected, USD-. That being said, as we're now firmly in a season of shifting USD and EUR fundamentals, shifting to fall in line with monetary policy, it would not shock me to get an upside surprise on the retail data. Nevertheless, I have to forecast what my reseach shows and it shows me that the retail sector is weak and still floundering.

Import Price Index -- this is a very key inflationary report. I must forecast the index to print USD+. China's PPI is off the charts. In fact, most nations that we import consumer goods from is experiencing rampant inflation acrossed the board. Inflation is China's biggest export to the U.S. right now and I see zero evidence that it's scaling back at this point. I'm hoping the truth is told on this because a hot headline number should prove to be very USD+... maybe not immediately but as things unfold with the overall underlying fundamentals of the market.

Also, there's a meeting with leaders from the EMU that we need to keep an eye out for... it's highly probable they will discuss economic conditions and monetary policies and then release a statement...

I hate to keep repeating myself, especially for those of you who pay close attention, but I want to be clear that I firmly believe we're well underway in a fundamental shift between the U.S. and Eurozone. Basically. this means we should continue to see stronger USD fundamentals and some rays of hope while we should see weaker EUR fundamentals and some shades of darkness.

Once we get to the point where the ECB dials back on their over-the-top hawkish inflation rhetoric things should really get moving for the EUR/USD... all of you that have been patiently holding shorts in the high 1.4000's might be smiling in the next few weeks and months.

EUR/USD:

I really don't have much new to report here... I'm not giving much consideration to the moves we made the past 24-hours... we have too many big key fundamentals this week to even dwell on what we've already done, my focus is now on what it could do...

My overall bias remains neutral.

My short-term bias is to continue shorting the euro rises and taking new longs when the opportunity is ripe, using low margin and making sure all of my reward vs. risk ratios fall in line to do so. I urge caution with adding new longs and urge careful managment of new longs, especially above the 1.5550 level, if you have any there.

The market is very thin and quiet now, but I do have a few key levels based on current market conditions:

Downside key levels:

1.5518
1.5504
1.5489
1.5468
1.5441

I'm seeing decent euro support at the 1.5520-30 level in general.

Upside key levels:

1.5552
1.5578
1.5598
1.5611
1.5628

That's it... be smart heading into tomorrow... there's a lot of big data on the books and we could certainly see some heightened volatility... practice strict risk and money management this week please.

EUR/USD Weekly Outlook 5/11 thru 5/16 2008

If you've been enjoying the volatility and price swings of the past few weeks, you're in a for another treat... this week nearly every key piece of fundamental data is directly tied into Fed and ECB interest rate and monetary policy... I'm talking connected-at-the-hip type stuff such as:

*U.S. and Eurozone consumer inflation data
*U.S. and Eurozone production and manufacturing data
*U.S. retail sales data
*U.S. housing data
*Foreign investment and foreign imported inflation data

Plus, Trichet and a bunch of goons from the Fed will be out in force on the speaker's circuit talking about monetary policy, economic outlooks, housing, credit, etc.

Tomorrow the only real key even is a speech by Trichet during mid-morning NY session, so we'll want to keep close watch on what Trichet has to say.

EUR/USD:

The euro starts the week off in a precarious position... last week it failed at 1.5600 and proceeded to take a nose dive... then the euro managed to crawl its way back up only to fail at 1.5500 and is under a touch of downside pressure here at the start of the week.

This is exactly why I've been shorting the rises on the euro the past three weeks because of it's repeated inability to make higher highs, because of it's very visible lack of momentum to hold any ground at the top of the range, and of course because of the shifting fundamental situation in the U.S. and Eurozone.

It's my opinion that the bulk of the attention this week will be put on the CPI data. The way the scenarios could play out are very simple although not very easy to predict...

Hotter than expected Core CPI would prove to be very USD+. Weaker than expected Eurozone CPI would prove to be very EUR-. It's really that simple... if Eurozone CPI prints as expected I do not believe it will give the EUR much of an upside boost because it would just mean the ECB will stay on the same path and will say the same things they've been saying.

Now, at expected or weaker than expected U.S. CPI data could very easily put the dollar back under pressure against the euro. It's no secret inflation is stiffling in the U.S. Based on my research, on the low end, inflation is at least 4.00%. It's my own personal opinion that inflation is running at 7.00% or better. Of course, the Fed has not yet relented from the "no inflation" story.

The reason why at or weaker than expected U.S. CPI could hurt the dollar is because it would renew the market's belief that the Fed has room to cut rates another 25bps or more. I still believe the Fed is likely done cutting rates and that inflation should begin to take center stage, but obviously what I think and what the Fed thinks is usually on the opposite end of the spectrum.

Regardless, when the time does come that we see some truth in inflation data like CPI, Core CPI, PCE, Import Price Index, etc., it should give the dollar a needed boost.

I really don't have much more to add at this point... it's very early in the market, we have a ton of data on the books, and I don't expect any bigger moves before at least midnight EST.

Once Frankfurt and London open we'll have a much better idea of things and we'll get a much clearer read on the market.

I'm sitting tight and waiting to see how things play out over the next 8-12 hours... there are a lot of unknowns with this week's fundamentals but a high potential for volatility and price swings... I'm managing my risk very tightly... I'm not taking any knee-jerk trades...

Trade Team Update

Well, the moment the markets were waiting for has come and gone with little fanfare... and probably to the disappointment of many. In almost robotic-like fashion, mademoiselle Trichet stuck to the party lines during his press conference this morning.

He didn't give USD bulls much to work with and left EUR bulls with no new rhetoric or signals to hammer the dollar with. There were really only two things the market's were listening for:

1. A signal of potential rate cuts in the near-term.
2. A downwardly revised view of Eurozone growth and overall fundamentals.

Trichet did speak of downside risks to growth but he did not, in my opinion, use any new or strong rhetoric that would give the market much firepower to slaughter the euro.

It's no secret growth is slowing in the Eurozone and that it will continue to slow as the year goes on, but the market has been getting anxious waiting for any signs or signals that Trichet wants to cut rates to re-stimulate European growth.

Those anxious traders didn't get that signal today as Trichet remained clearly hawkish on inflation/price stability. And rightfully so as Eurozone inflation is well above the ECB's target rate of 2.00%.

At this point it's just not possible for Trichet to back off from the hawkish rhetoric in regards to price stability... inflation is rampant in Europe just as it's rampant in the U.S... the only difference being is that the ECB admits it and is maintaining a monetary policy stance to keep it from getting out of control, whereas the Fed is lying about it and letting it persist by price fixing the market's and keeping downward pressure on the USD.

Even still, I will maintain my stance that we see an ECB rate cut in the second half of '08, potentially during the latter half of Q3 or during Q4. So, for at least another month we have an interest rate differential that clearly favors the euro vs. the dollar...

Tomorrow:

Before we talk about tomorrow's fundamentals, just a quick word about today... Initial Claims came in better than expected but I can't be too excited because we're still well above the 350K level which is nothing to cheer about. On the flipside, U.S. productivity numbers came in better than expected and gives us another glimmer of a turnaround with some USD fundamentals.

Tomorrow we get one piece of data from the Eurozone and one piece of data from the U.S. and both are key. First we get French Industrial Production which I must forecast an at or below expected print. Things are really not great in France and I can't see a EUR+ print.

We also get the Trade Balance figures tomorrow. Trade Balance is vital. Not only are the banks and market players keyed in on Trade Balance data, but all the markets as a whole take this report seriously.

One of the reasons the USD has been so weak the past few years is directly tied into the abysmal Trade Balance situation. The demand for U.S. goods has been steadily declining over the years and U.S. demand for foreign goods has been on the rise. That right there is a recipe for a weak dollar.

But the Fed has had to keep the dollar weak in order to heal the beatup Trade Balance. So far the Fed's mission has failed because we've not seen really any USD+ turnaround here.

My forecast for tomorrow based on my research is that we see a better than expected print. I believe we may be at the point where the persistantly weak dollar could benefit the Trade Balance.

EUR/USD:

I was waiting until after Trichet's performance today before revising my overall EUR/USD bias. I'm basically seeing Trichet holding a neutral stance on growth and rates. That translates into me maintaining a neutral bias overall for the time being.