Trade Team Update

Overall we had a rather choppy day in the market... during early Frankfurt session I took some euro shorts, but that was about it as far as trading went.

The euro didn't like being below the 1.5600 level and has creeped back up to the 1.5660 level. It seems for now we may be temporarily stuck in about a 120 pip range and we could see this persist through most of today's Asian session.

German CPI came in below market expectations and this is something to note... I'll talk more about that in my commentary below...

Tomorrow we get the S&P/Case-Shiller Home Price Index which should be pretty crappy, I don't see much relief or bottom to falling house prices. Consumer Confidence should print USD- as well. The consumer has continued to pullback and I've not found any credible evidence to prove otherwise.

I can't really be bullish on either currency at this point. As you'll read below, I make my case for why the euro can depreciate. Fundamentally, the dollar is still worthless and there's no complete signs of a full recovery.

There are two events this week that will give my trading more clarity -- FOMC and NFP. Until then, I'll play it tight and smart and minimize my risk exposure. I cannot stress risk management enough. Don't force trades... don't trade for the sake of being in a trade. Follow your gameplan and trade rules and be smart about how you trade the next 4 days...

EUR/USD, Fed, and ECB:

The farther we get away from 1.6018, I see the probabilities decreasing that we go back and break that level. As we’re correcting the past few days I see the rhetoric coming from Trichet and the ECB changing and shifting in a way that is more EUR-. I’m also seeing some of the Eurozone data showing patterns of weakness.

The ECB is no longer talking the euro back up like they used just a few weeks ago. They are not talking hawkish about inflation and are now saying that rates will not need to go up to fight price instability. I take all this as a signal we may see a shift in monetary policy soon.

Based on patterns I’ve observed with Fed and ECB central bankers, it’s rarer to see central bank rhetoric and fundamental data totally contradict each other. While it’s true central bankers will either lie, sugarcoat, or gloss over certain fundamentals, in the end, monetary policy will almost always fall in line with rhetoric and with the data. Central bankers might be liars and thieves, but they still have some pride and will try to avoid looking like idiots as much as possible which is just normal human behavior.

When it comes to any statements made by the Fed and ECB I’m always reading between the lines. I need to cut through the crap and focus on the “signals” that the Fed and ECB give the markets. Dumb money will usually miss those signals. The Fed and ECB do not give signals to dumb money, they give signals to smart money because smart money will take those signals to respond the way the central bankers want the market to evolve. The Fed and ECB know the banks are at their bidding and vice versa. It’s a very profitable relationship for both parties.

If the ECB has had enough of the strong EUR, they will first signal this through rhetoric and commentary, which I believe they started doing about two weeks ago (which is why I was shorting above the 1.5850 level). Next, the action will come directly through monetary policy, specifically interest rate policy.

The Fed’s monetary policy over the past year is a prime example of how this process works. When the Fed disregarded the need for a strong dollar and shifted their focus on growth, credit, and housing, their tones on inflation first shifted through their rhetoric and then it physically shifted through their monetary policy over the past 8-months.

Could the Fed admit we have inflation yet go into a rate cut cycle? Of course not, it would be 100% contradictory to their rhetoric, their signals, and their focus. In this market often times perception is reality. You cannot have $120 oil and not have inflation. You can’t have off-the-charts PPI in China and not have inflation in the U.S. You can’t have soft commodities flying through the roof and not have inflation. As you know, Fed inflation data says there’s no price instability, which falls directly in-line with Fed rate policy as the focus is not on inflation but on credit and growth.

In the coming weeks and months it’s my opinion that we will see the Fed shift rhetoric to focus on inflation. It will take the economy about another 6-month’s before the effects of the rate cuts are felt in the broader economic system. Once those cuts finally cycle through the economy and the economic stimulus checks start boosting the consumer sector, I think we’ll see a more concerted effort by the Fed to change the tune they’ve had since last March.

These are just my opinions of how I see things in this market and how it makes sense to me… so, take all this for what it’s worth.

Anyway, fundamental data patterns and central bank patterns will often correlate closely. When the ECB was over-the-top hawkish on inflation, and rightfully so, they were in a rate hike cycle. Now we see Trichet backing away from those hawkish tones and the ECB is saying inflation will subside in the coming months. It’s true, if the USD finally bottoms out, finds support, and finds a way to rebound, it will actually fight back global inflation because commodities should weaken, which would be a very positive inflation fighter, especially against energy-induced inflation.

I believe Trichet is giving the markets signals of a coming rate cut later this year. I firmly believe we will see an ECB cut in the second half of this year, before the end of the year. Just this morning we saw German CPI come in below expectations… are we in the beginning stages of a EUR- data trend in the price stability department? Could be…

And then there’s the Fed. The FOMC will deliver their rate decision in less than two days. Will we get a cut? Yes, I believe we do. It’s almost a foregone conclusion that we’ll get a cut. The size of the cut is something I cannot try to predict, but the verdict will largely dictate the market’s reaction.

The accompanying statement from the FOMC will be absolutely critical. The market is looking for “signals” that Bernanke has either reached the end of the rate cut cycle or is just one more FOMC away from reaching the end.

The patterns in the interest rate cycles between the Fed and ECB allow me to believe the two central banks play a game of see-saw. Can the USD and EUR both be heavyweight champs? No, there is only one heavyweight champ. I’m not saying the dollar is about to rise from the ashes and totally resurrect itself, but if the Fed and ECB are truly playing a game of see-saw, we may be getting close to a period of dollar recovery against the euro.

If the ECB is orchestrating a period of EUR weakness and possibly more than one rate cut, the patterns within the Eurozone data will show weakness in these sectors:

CPI & PPI
GDP
Industrial and Manufacturing Production
ZEW & IFO
Retail Sales & Consumer Confidence

I don’t have a crystal ball that tells me the future of the market. The best thing I can get to a crystal ball is for me to dissect every little comment and speech by the Fed and ECB. They tell the markets what they want the markets to do and the smart money reacts accordingly.

The Fed’s monetary policy since at least October of 2006 told the markets it was OK to sell-off dollars and the ECB’s monetary policy told the markets it was OK to buy up euros. I don’t see that those same signals are there anymore.

Just some food for thought… and again, these are just my opinions and how I see things in the market. You have to come to your own conclusions and trade accordingly. But this is why I’ve stopped taking euro longs and have been shorting the rises for the past few weeks. I prefer to stay ahead of the game and ahead of the curve and not get on the wrong side of the market.

Ultimately, the market will decide. It always does. I'm not ready to declare myself a EUR bear, but I'm certainly not going crazy with adding new euro longs up here at these levels.

Trade Team Update

Quite an interesting day... we started things off by making a new all-time high at 1.5911 and then proceeded to drop almost 200 pips after Trichet's press conference...

First, lets dissect Trichet...

Overall, Trichet told the market's what the market's expected to hear... but, I have to say that he conducted today's interest rate press conference in a way and manner I've not observed him do before...

I study Bernanke and Trichet's body language, I study the way they say things, the way they respond to questions, they way their eyes and hands move when they speak, and the way they deliver their messages to the markets....

Trichet was very benign today. He just seemed to gloss over all they key points... like he was reading from a script void of any personal inputs, feelings, or emotions...

He wasn't over-the-top hawkish on inflation and wasn't over-the-top dovish on growth. Very middle of the road, so to speak... He did mention price stability concerns and growth concerns and credit risks, but it was all done in a very melancholy style.

I don't believe he gave the markets any real signs or signals and didn't tell the markets anything they didn't already know before the meeting... upside risks to price stability, but will moderate later in the year... credit tightening causing market turmoil... downside risks to growth... thinks Fed and Treasury believe in a strong USD policy... excess FX volatility undesireable... blah blah blah.

Overall, his sentiments can be viewed as EUR+.

All-time high:

Despite our special vistor in the chat last night who assured us, based on EMA's and pivot points, that the euro would not make an all-time high today, somehow we managed to make one... amazing... must have been a pure fluke...

Anyway, what's critical to note is the almost instaneous failure to sustain a break above the 1.5904 level. The euro has now made a pattern of failing at the 1.5900 level, and this is to be considered...

I believe there are big-money stops sitting at the 1.5920 level and big money pushed us back down. I believe the banks will want to run those stops at 1.5920+.

But I am taking strong note of the repeated failures at this level and with it grow more cautious taking new euro longs. Am I still biased euro long? Yes, I have to be. I still believe we have room at the top and cannot count the euro out yet.

Our correction today was largely fueled by: profit-taking, some stops getting triggered, and commodities getting hammered. But, I do not believe we've yet started our bigger, more sustained correction that is way, way, way overdue...

EUR/USD:

As of the writing of this post, we're sitting close to one of my key levels -- 1.5734... the market is totally thin and the price action is not giving any indicator either way... best thing we can do is keep an eye on the spreads to determine when we'll start moving again and in what direction.

As I said, I am biased to be euro long still. Same bias as I've had the past 2 months. But my caution is growing stronger and I am tightening things up on the longside and will not be making any euro long trades up at these levels unless I see a clear sign within the price action.

I will hold all of my best euro swing longs from 1.4595 on up at this point. I will also continue to short the euro on the rises. I took a euro short this morning at 1.5808 before we dropped and will hold it with a +1.

Tomorrow we have the Import Price Index which I believe should print USD+ as China has done well to import inflation to the U.S. the past few months. The Michigan Sentiment should print at or below market expectations.

The G7, starting tomorrow, will take center stage this weekend and the first part of next week. I may post on Saturday when I get more news and data from tomorrow's afternoon meetings, but please don't go into this weekend with any dumb trades, overleveraged accounts, or knee-jerk, last-minute trades taken on a Friday afternoon... you could be regretting it when the market opens on Sunday. Just a word of caution...

Trade Team Update

Well, the market's been pretty quiet the past 24-hours, so I guess we really don't have much to talk about today...

WAIT!

In case you were hibernating, we basically had the EUR/USD make a 500 pip roundtrip between the market's open yesterday and the NY session today...

First, lets re-cap what happened, then we'll look at tomorrow's fundamentals, FOMC, and some possibilities for the euro in the near-term...

As is typical between 5:01 p.m. EST and 5:59 p.m. EST, which is super-low on liquidity, I believe we saw some stop hunting and stoploss triggering yesterday as the market ran up, taking off at 1.5682, only to return back to 1.5682 exactly 90 minutes later...

But not too long after that we got the big news over the wires that the Fed cut interest rates on the discount lending window (not to be confused with the Fed Funds target rate).

That's all the market needed to take us back up to make a string of new all-time highs before topping out at the 1.5900 level... that very violent and exaggerated move we saw last night is what happens when anything related to interest rates are suddenly changed... it is rare for the EUR/USD to make that big of an extended move -- typically, the only thing that will ever cause such a move is a terrorist attack or a change in interest rate policy... so once again we see how critical the matter of interest rates and interest rate policies is to our market...

By mid-morning, the EUR/USD had once again returned back to the point of lift-off which fits right in with it's consistent price patterns...

Now what? First thing we need to do is get through tomorrow in order to paint a clearer picture of the future...

Tomorrow:

In addition to the FOMC, we have a string of key U.S. data release, however, none are as important and critical as what will happen at 1415 EST.

Besides the interest rate policy, the two biggest pieces of data are PPI and Housing Starts...

PPI -- producer/manufacturer inflation data... the market is forecasting a rather sharp decline in producer inflation from last month... I don't believe this at all, but as we saw with CPI, I suppose the number will print to show zero or almost zero inflation in the production sector... based on my research and based on what's happened with commodities during Q1 of this year, we should see a PPI number of between 1.5% and 2.5%.

This will never be revealed as long as the Fed stays in a rate cut cylcle -- you can't admittedly have consumer and producer inflation and cut rates, so we'll surely be lied to again tomorrow.

Housing Starts -- there's been absolutely no visible or viable signs of relief in the new construction sector... construction layoffs continue to persist... new home loans are down, plus with the sharp decline in the employment sector and the overall slowdown with the consumer, there's almost no way we see a USD+ positive print on this one... banks are not lending, consumers are not buying, builders are not building, pretty simple.

Overall, I don't expect any upside USD+ surprises tomorrow on this data...

FOMC:

What's the Fed going to do tomorrow? I have no idea. I don't even really care to be honest... My accounts are ready to take whatever the Fed throws our way...

I've spent the last two weeks preparing my accounts for tomorrow... I've cut euro shorts that were in the negative and have not taken any euro longs at the top of the range... I'm net euro long and I have tight take-profit orders on my highest euro longs and I have tons of free margin to take shorts should we get a surprise tomorrow...

I'm not bragging, just explaining why I have little concern with what the Fed does tomorrow and revealing how I prepare my accounts and protect my margin for rate decision times, especially when there's a lot of unknowns...

Lets take a look at some of the possibilities for tomorrow:

No cut -- this is a no-brainer... if the Fed shocks the markets by holding rates steady at 3.00% we could very well see a violent drop in the EUR/USD tomorrow. A no cut would be the first step in the direction of correction... I have little expection of Bernanke holding rates, he's too much of a manipulative price-fixer to do such a thing, but I'm certainly prepared for a shock of this magnitude.

25bps -- there's probably a better chance of a no cut than there is for a measly 25bps cut... if it were to happen, I think it could initially be USD+ but a cut is a cut and it would just further widen the interest rate differential between the U.S. and Europe...

50bps -- there's a decent probability we see a half point cut tomorrow... if this were to happen we might see some initial volatility but I would imagine the market would just continue on selling dollars and buying euros in the near term...

75bps -- I hate trying to predict these things, but if I had to venture a guess it would be that we get a 75bps cut tomorrow... a good number of economists are forecasting this and most of the market players are expecting this... again, it would just serve to further widen the already lopsided interest rate differential between the dollar and the euro and just give the banks more reason to keep pushing the euro higher in the near-term...

100-125bps -- any cut of 100bps or higher would be a real shock to the markets, I believe, and the result would likely be a violent dollar sell-off acrossed the board. The bond market is clearly begging for this kind of cut, Wall St. wants this kind of cut, and with the Fed lying about the lack of inflation, it would not at all surprise me to see a fat 100bps cut.

If the Fed cut by 100bps tomorrow that would put the Fed Funds target rate at 2.00% vs. the ECB's key lending rate of 4.00%. The 200bps differential between the dollar and the euro could be the final nail in the coffin for the dollar and ultimately send the USD Index into the 60's...

Should the Fed cut more than 100bps tomorrow, we could see a very violent crash of the dollar at which point the only saviour of the dollar would be a tag-team operation between the Fed, ECB, BOE, and BOJ to physically buy dollars...

Thus far all verbal intervention has failed miserably... we got some more verbal intervention today which dropped the euro 80 pips, then it was back to business as usual... somebody will have to cowboy up if they want to see the dollar resurrected from the dead..

I think if the Fed shocks the market with a no cut or a small rate cut, it's entirely possible we saw our top for now at 1.5900... many traders have asked my target for this move we've been on and as I wrote last night I'm looking at anywhere from a 1550 to 1750 pip move from the bottom we made at 1.4380.

1550 pips, bottom to top, would have put us around 1.5930... 1750 pips, bottom to top, would put us around 1.6130. Last night we came within less than 30 pips of my first target of 1.5930...

How I arrive at those targets, based on pip moves, is a combination of fundamental and price action factors, market momentum, overall market sentiment, and interest rate factors...

Now at this point I do not see a clear signal to cause me to close out most of my best euro longs and start adding shorts... I need more confirmation and I believe tomorrow's FOMC will give me a good deal of confirmation for what I'm looking for...

Should the Fed give the market a fat rate cut tomorrow, we'll likely be back on the train to 1.6000 unless somebody blows up the tracks before we get there...

Trade Team Update

Surprise, surprise, another day, another new all-time high... we've got a lot to cover today, so lets get right into it...

Well, the excitement from yesterday's Fed liquidity move didn't last long and the market was back to pushing the euro north... no big shock there...

There were two very specific comments made early this morning that got the ball rolling and helped light the torch to push the EUR/USD to new all-time highs at 1.5570. And here they are:

UAE Economic Minister: Changing USD peg may ease inflation

China Commerce Minister Chen: China wants to invest more FX reserves abroad

And that's all the market needed to hear to go nuts and start buying euros and selling dollars... I don't want to say "I told you so," but I do want to call to your memory something I posted in Sunday's update:

China -- with the USD at multi-week lows against the euro and as reflected through the USD Index, it's very likely we could hear from one or more Chinese government finance officials about the weak dollar, about currency reserve shifting, re-positioning with U.S. debt instruments, or a combo of the three.

The EUR/USD was also helped along by oil pushing well over $110 and by gold continuing it's bullish run... in addition, as the dollar plunged against the euro the 10-year yield tanked, only further helping to fuel the fire... basically all of the key market correlated variables were working against the dollar and for the euro in today's market action...

EUR/USD:

First of all, we have some mega fundamentals tomorrow, the biggest of which is Core Retail Sales... to be honest, my brain is fried after today, so I can't get into any big fundamental analysis on tomorrow's data... basically, the retail numbers should be crap. End of story on that one.

Am I still biased euro long? Of course, I have been for over a month and I'm not changing my bias now... I have not seen a single sign or signal in the market to cause me to change my bias at all whatsoever...

But, the longer we extend this bull run and the higher we go into unchartered territories, the more cautious and conservative I get when I add new euro longs...

One reason my caution is growing is because of what a central banker or what several central bankers could do about the crashing dollar and the skyrocketing euro... the more this exaggerated bull run is extended the higher the probability that we get some type of intervention in the market... just something to keep in mind...

For the past two days I've cautioned about some "interesting" things happening during the early European/London/NY sessions and I have to give the same cautions again... we may see some ranging during most of Tokyo, but that could all change after 0400 EST tomorrow morning...

Trade Team Update

These are the types of day I live for as a trader... tons of money making opportunities, tons of volatility, tons of liquidity, tons of banks triggering stoplosses which helps our entries, and lots of general mayhem in the markets...

There are two very exact and specific reasons why the euro jumped up to make a new all-time high at 1.5497 and then why we dropped from 1.5497 to 1.5281... both reasons are fundamental in nature and stemmed from the ECB and the Fed.

Early this morning our good friend Axel Weber from the ECB basically told the markets that the ECB is not cutting rates, bottomline. That's all the market needed to hear to send the euro to the moon -- remember, interest rates, interest rate policy, and interest rate futures are the #1 key drivers of this market...

OK, so a few hours later, Ben Bernanke comes out with this great plan to offer $200 billion to banks in exchange for just about any type of security that they could throw at the Fed... the Fed said they'd even take worthless and risky mortgage backed securities as collateral... this was the Fed's way of easing the credit crisis and liquidity crisis that has plagued the markets for months and months, despite steep rate cuts...

To break it down as simple as possible, you give the Fed securities, private or institutional, and they give you money... not money to lend to the general consumer, but money to lend to other banks... plus, the Fed said the banks could take 28-days to cover instead of the normal 24-hours, and they went as far as saying they would be willing to extend this program as need be...

This news immediately sent the market down for one very key and specific reason... you guessed it... INTEREST RATES! It's very simple, when the market saw this move they immediately got the idea that the Fed may not cut rates next week or may cut them by just 25bps...

Just yesterday Fed Funds Futures showed a 100% chance of a 75bps cut. As soon as this news hit the wires, there was no more 100% chance of a 75bps cut, it was gone, and the banks responded to those interest rate futures by taking the market down...

EUR/USD:

So, we got some really big news from the Fed. And I have to be honest and say that this type of plan is much better and much smarter than slashing and hacking up interest rates, it might, just might do something worthwhile and positive...

Overall it's not going to help our inflation issue, but it could turn out to be one of the more "dollar positive" moves the Fed has made in months.

First, let's talk about tomorrow's fundamentals... the two biggest pieces of data is French CPI and Crude Inventories... I believe we see very EUR+ CPI data out of France, there's no clear signs inflation is slowin in France.

The Crude data is key as oil continues to be on an unstoppable run the past few weeks... the legendary commodities trader Boone Pickens was all gung-ho about his big oil short a few weeks ago, but word is that his trade, which is reportedly massive, is down almost 15% and if oil goes any higher, he's going to have to do some serious short-covering... I don't think Mr. Pickens wants to see $110 oil but he just might soon...

Trade Team Update

Yesterday was certainly the calm before the storm! We've got a ton of stuff to cover in today's update...

First, we're going to look at what brought us to the doorstep of 1.5000 during the NY session, then we're going to look at what took us up and over 1.5000 right after NY closed and we'll accomplish this via a lesson I'd like to call "Stop Hunting 101," then we'll close with a brief interesting look at the euro/Dow correlation...

We moved a historic amount of pips bottom to top -- around 275 pips today, which is well above the average the euro would ever move in a single day... but the big push was fueled by the Fed and by the banks/brokers triggering stops, which we'll get to in a minute...

PPI and the Fed:

As we forecasted in yesterday's update, PPI came in very USD+, with a headline print of 1.0%, which far exceeded market expectations. Now, we did caution against taking any knee-jerk trades in reaction to the PPI number and I believe most heeded our advice...

There's a common trading "technique" to trade news events based on deviations of forecasted and actual numbers and I absolutely do not agree with that style of trading and honestly I think it's idiotic to trade that way as there are so many variables that cause the market to move and react and a single piece of data is no valid indicator to trade from... but, maybe we'll cover this more in detail another time...

So, the reason we cautioned against making a knee-jerk trade on PPI was the fact we had several Fed speakers today and we had tons more data due out which was forecasted to be USD-. Sure enough, both the Fed's Kohn and Poole completely ignored today's hot inflation data...

I have to be honest, there was a little part of me that truly thought the Fed would address today's PPI and throw at least a little bit of hawkish inflation rhetoric into the markets... we got no such rhetoric, in fact, the Fed ignored PPI and even went as far as to basically say there was no inflation issue and that there's no focus on inflation!

The market knows the Fed is flatout ignoring inflation and is likely going to cut rates another 50bps in March, so again, we have all the more reason to see the euro continue its bull run against the dollar...

What that did was just give the market the greenlight to hammer the dollar and boost the euro up and away towards the 1.5000 level, but failing before the market "closed" at 5:00 p.m. EST

And from stage left, enter the banks and brokers...

Stop Hunting 101:

Today in the chat and over the past few weeks, we indicated that should the market take the euro to 1.5000, that it would not stop there and turn around, but would likely move to 1.5050 to give the banks and brokers the opportunity to trigger stops and cause major stoplosses acrossed the board...

That is precisely what happened when we touched 1.5000... the banks and brokers triggered stops and this fueled the exaggerated move towards the 1.5050 level, before falling back...

Now to this day I still get traders that want to argue with me or don't want to believe that there's such a thing as stop hunting and stoploss triggering. I'm not going to use this post to discuss the value or stupidity of using stops, but rather to explain how this whole thing works with the hopes that more traders can eliminate getting stop hunted and can keep more of their profits...

Basically, all the brokers shove it down your throat that you must set tight stoplosses of 20 or 30 pips or at 00 and 50 levels, plus most tech traders use stops because they have no clue how this market really works and why it moves the way it does, plus all the big "gurus" beat traders over the head about placing tight stops, plus if you go into any FX chat room or message board (except ours) and you tell them you don't use stops you'll get ridiculed, beaten-up and bullied for not using stops... it's really ridiculous...

With the vast majority of retail traders using tech indicators, the same tech indicators, the vast majority are all setting stop losses within a few pips of each other all on the same key tech levels, so right off the bat, they are sitting ducks, in addition, the brokers can see those stops and they have computer algorithms to hunt those stops...

So, during times of low liquidity and during times when the big market players are out of the market, the banks and brokers work together to manipulate the market to move against those traders and to trigger those stops, it's very simple and easy for them to do...

Have you ever set a stop? Have you ever seen your stop get hit only to watch the market turn right around and go the opposite direction? If you answered yes to that, you were the victim of a stop hunt.

The other way traders get easily stop hunted is for the fact most set stops on round-number levels like 00, 20, 40, 50, etc. For example, suppose a trader uses some techs and they decide to set a stop 30 pips below a key Fib line (which is tremendously common) well, the brokers and banks know what those levels are and they know the mentality of the tech traders so they use low-liquidity opportunities to push the market past those key tech levels to knockout stops and then the market turns around and goes the opposite direction...

I could go into much more depth on this, but I think you should get the idea...

Stoploss triggering is similar to stophunting, but slightly different... lets use today's move from 1.5000 to 1.5049 as our example because that was a classic, textbook, run-of-the-mill stoploss trigger by the banks and brokers...

How did I know that the banks would trigger stops if we were to break the 1.5000 level? I can't see any stops and I'm not a broker, and I'm not psychic, but I knew this and warned about this way in advance because I know the mentality of traders and I knew there would be tons and tons of stops all over the place between 1.5010 and 1.5050...

On a stoploss triggering situation, when there are big stops placed with big money on the line, this just fuels the stoploss fire and that's when we see the kind of exaggerated and violent moves we saw today...

And surprise, surprise, when did this take place? Almost as soon as the NY traders went home, when the European and UK traders were sleeping, and before the Tokyo traders turned their computers on... it started right after 5:10 p.m. EST when the market was completely flat and there was almost zero liquidity...

That is the time of day that the banks and brokers will hunt stops and trigger stoplosses... it's tremendously easy for them to do, as we saw today right before our eyes... and just as we said, the market would return to the point from where it took off -- the market will almost always return to the point it takes off from because those moves are 100% stoploss triggers and 0% buying... if it was a move caused by buying, the market would not fall right back down again and return to point of take-off, but it did...

Simply look at a chart at 5:10 p.m. EST, follow the spike up to 1.5049, then follow its fall back to where it was at 5:10 p.m. EST -- I'm not into candlepatterns, but that is a straightup stoploss trigger pattern on your chart!

Again, I could go into more depth on the stop thing, but hopefully I've made my points clear and this is information you'll take into consideration if you decide to use stops in the future...

Tomorrow's Fundamentals:

Once again, we have a huge day tomorrow... will we move 275 pips? I can almost guarantee you that's not going to happen, but it doesn't mean we can't see some heightened volatility and price swings tomorrow...

I'm going to try to sum tomorrow up as quick as possible:

Durables and Core Durables: suck
New Home Sales: suck
Bernanke: suck, lies, dovish, suck
USD: suck

One thing I want to mention before we wrap up -- as you know, one of the market correlated variables we watch is the Dow. This doesn't make much sense to the bulk of the FX trading world, but it makes sense to me because it's a great indicator... check this out... the last time the euro made an all-time high, the Dow had made 3 straight days of higher highs and higher closes... well, the Dow has just made 3 straight days of higher highs and higher closes and once again the euro makes an all-time high... coincidence? Maybe, but I think otherwise...

Lastly, on Sunday's update we talked about the USD Index... well, support gave away and hit the next support level of 74.50 before bouncing back... there was a reason we urged you to watch the USD Index this week and that reason played out before our eyes today... I encourage you to watch it closely the rest of this week as it's another great indicator for the EUR/USD...

Trade Team Update

Today was what we call the calm before the storm... not a whole lot of volatility or liquidity in the market as the banks are likely waiting for bigger data tomorrow and throughout the rest of the week...

Just a few things to re-cap... the Dow made some more weird moves today which also helped keep the EUR/USD in standstill mode, plus the 10-year yield made a 12-point move to the topside, which was USD supportive against the EUR.

This morning's housing data came as no surprise at all -- some of the worst data since 1999... and the only reason we slightly beat expectations was because median home prices dropped from $207,000 to $201,000 month-over-month.

Homeowners are slashing prices to move inventories, and for reasons like that the dollar will not be able to gain on the euro with better than expected headline numbers -- and this is a valuable lesson of why we do not typically "trade the news" or trade a specific data number... we have to do things how the banks do them, which is dissect the data, break it down, look at all data points, and come to a proper conclusion and evalutation on a bigger picture scale...

Making a knee-jerk reaction to a number and making a knee-jerk trade based on a number or a deviation of a number is about one of the stupidest things you could do in this market... it's not always about the headline number and taking a trade off of that will just get you stuck in a dumb trade most of the time...

Some people who don't understand how we do things and how we trade the market accuse of just being "news traders." That couldn't be further from the truth -- being a fundamental trader is not the same thing as being a news trader -- not even remotely close, not even in the same ballpark or in the same universe...

Tomorrow's Fundamentals:

In case you hadn't noticed, tomorrow is a mega, massive fundamental day... lets take a look at the most important stuff for tomorrow...

First up to bat is German IFO -- IFO is incredibly important tomorrow because this data will show the overal sentiment and views from various businesses, manufacturers, retailers, construction companies, wholesalers, etc. in the Eurozone's largest and most important economy. We'll get to see if those firms are concerned about economic conditions in the Eurozone or if they have a peachy outlook on the future...

Based on some data we've seen the past few weeks, I believe we could see a bit of downside surprise with this IFO... specifically, Industrial production and output has slipped this year. Plus, German workers are demanding wage hikes. But what would be positive for the euro is if those firms are still freaking out about inflation, which is normally the case in Germany...

I can't predict exactly how the data will print, but based on my research, we should see the data come in softer than the previous month...

Next up to bat is PPI -- with inflation now just starting to come back into focus in the U.S., PPI will be incredibly important tomorrow... if producers and manufacturers are paying more for the materials they need to produce, those prices get based on to the consumer, and this price instability causes inflation, and inflation is GREAT for a currency!

It's my belief we could see USD+ PPI number print and possibly even a USD+ upward revision to last month's PPI number... again, I'm not in the business of making predictions, but based on my research of the markets and inflation specifically, if the truth is to be told tomorrow, PPI has to come in as expected or hotter than expected...

Next up to bat is Case-Shiller Price Index -- this is not so much of a market mover and will not come under too much scrutiny tomorrow, but it's a respected piece of data, so of course we need to watch it and analyze it... bottomline, it should show what we and the markets already know about the housing situation -- I do not expect any upside surprises on that one.

Next up to bat is Consumer Confidence -- is the consumer confident? Heck no. The consumer is not borrowing money and not putting goods on credit -- they are either maxed out or freaked out or put out...

Once again, based on what I see happening in the consumer and retail sector, there's really not much optimism or hope -- that being said, if we see something like an upside surprise with this data and a hot PPI print, I believe the USD could certainly get some love tomorrow...

Batting at the bottom of the order -- House Price Index, Richmond Fed, and Fed Kohn speaking... but, who really cares, we got PPI tomorrow!!!

Seriously though, Kohn is going to talk about economic conditions and possibly about monetary policy... so, prepare accordingly... the Fed has been bi-polar on growth and inflation...

EUR/USD Trading:

There's no real price action to gauge the market with, we're in too tight of a range... I'm headed into tomorrow's cavalcade of news by not taking on any new trades I can't get out of by the time Europe opens... practicing strict risk and money management for tomorrow...

I urge you not to get yourself into an overleveraged situation tomorrow -- there's a higher probability we could see heightened volatility and price swings, so trade smart should this play out in the markets...