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.