Trade Team Update

Although we were stuck in a tight range today the trading was spectacular,I love the volatilty of 200 pip moves but I certainly can't complain when the market is holding out its hand to give easy pips.

We did have some key fundamental data released but as I indicated in yesterday's update I was not the least bit concerned with that and I was focused on Bernanke. Obviously the market was thinking the same way.

Bernanke was again hawkish on inflation but not nearly as hawkish as he was yesterday. The reason we moved big yesterday and not at all today was because Bernanke shocked the markets with his hawkish inflation tones. When the most powerful central banker on earth shocks the markets, the markets move.

Bernanke did downplay the connection between the 1970's inflation debacle and today's inflation situation. He basically said there was no similarities and that the U.S. would not suffer the same way.

I do not totally agree with his assesment. I think overall inflation is not much different between then and now. When you compare food and fuel prices between 1975 and 2008 and then you factor in the massive devaluation of the dollar you very much have the same situation. I'm not a Harvard educated economist but after doing some basic research it's pretty clear to me that the 2008 value of the dollar doesn't buy you any more than the 1975 value of the dollar when adjusted for not only inflation but for depriciation.

One of the other reasons I cannot agree with Bernanke is because the financial landscape in America is totally different in 2008 than it was in 1975. There has been massive wealth expansion in the U.S. between the late 1980's and 2008. There is a higher concentration of per capita wealth in the U.S. presently. This means the U.S. consumer is more enabled to spend in 2008 compared to 1975. The inflation is the same but the consumer is more equipped financially to deal with the price instability.

In addition, there has been a massive expansion in credit, lending, and debt since 1975. The U.S. consumer has many more avenues to access credit as opposed to the consumer in 1975. In 1975 consumers were not carrying multiple lines of credit as they do in 2008... in 1975 consumers didn't have equity in their homes to use as an ATM machine as they do now.

The point is, I don't see any difference between 1975 inflation and 2008 inflation, the only real difference is consumers have more disposable cash and access to credit to keep spending and to keep paying inflated prices on food, fuel, and consumer staples.

But now the dollar is even more devalued than it was in the 1970's and the inflation situation is the same, it's just easier for the consumer to manage because of the easy access to use debt and credit as a means of purchasing power.

Bottomline -- Bernanke is an idiot.

Tomorrow:

If you like a good circus side show, tune in to Trichet's press conference tomorrow morning. The market's are anxious to hear how Trichet is going to balance his rhetoric between rising Eurozone inflation and falling Eurozone growth.

Tomorrow is all about the ECB and Trichet. The ECB cannot cut rates and they cannot raise rates. Inflation is too high for the ECB to cut and growth is slowing too much for the ECB to raise. The ECB will hold rates steady at 4.00% tomorrow.

All eyes and ears will be on Trichet and will be listening to how he tempers the inflation and growth situation. Overall, I expect to hear Trichet stay on the hawkish side of the fence. Where things will get a little dicey tomorrow is if Trichet ups his dovish rhetoric on growth, credit expansion, the consumer sector, and the employment sector.

The market is expecting Trichet to talk tough on price stability. Where Trichet could shock the market is if he repeats his downside tones on growth like he did three months ago. Any strong rhetoric on falling growth should put a hurting on the euro. The market is looking for reasons to sell-off th euro and Trichet could give a great reason tomorrow...

You can expect the cadre of journalists to press Mademoiselle Trichet on future ECB monetary policy, specifically on the future of the ECB's key lending rate. We'll probably see his hands flying and fingers pointing pretty quickly into the Q and A session with the media...

Again, there is no bigger fundamental even than Trichet tomorrow... it is imperative you tune in and watch.

EUR/USD:

I don't really have much to say about the euro right now. We'll be in a fairly tight range until tomorrow morning... it's very unlikely we'll see any big moves before then.

I will certainly be flattening out as we lead up to Trichet... I'm not taking any useless risks and I suggest you do the same. Yesterday you saw the power a central banker has to move the market... Trichet has this same power.

Overall I'm still bearish on the euro and I will continue shorting the rises. Upside momentum is lacking at the present. But, we know what the markets are waiting for...

The market is ill-liquid right now and price action is hard to read, but I will offer these key levels based on current market conditions...

Key upside levels:

1.5454
1.5472
1.5488
1.5497
1.5504

Key downside levels:

1.5411
1.5401
1.5386
1.5363
1.5348

You know the drill -- be smart, don't overleverage, and don't take any dumb knee-jerk trades the next 12-hours.

Trade Team Update

An excerpt from yesterday's Trade Team Update:

I think we're getting close to hearing some hawkish tones on inflation from Bernanke

If you're still scratching your head trying to figure out why the EUR dropped 220 pips top to bottom, there's your answer.

Bernanke came out with guns blazing today on inflation... he was hawkish, very hawkish. I knew we were due to hear some hawkish tones from Bernanke and we certainly got them today.

After the last FOMC meeting I called an end to Fed rate cuts. I think Bernanke signaled the end of Fed rate cuts with today's speech. The market certainly took it that way as you saw. Obviously I'm going to stick with my call on Fed rates after what I heard today.

Really, that's the whole explanation for why we made a 220 pip drop. Are we going to drop another 220 pips tomorrow? Nope. But this only further fuels my overall euro bearish bias.

I have to repeat one of my favorite lines: the #1 key driver of the FX market is all things interest rate related... interest rates, interest rate policy, and interest rate futures rule the FX market. Interest rate activities make the market move. Bernanke's rhetoric had direct connection to Fed interest rate policy. His words were bullish in regards to Fed rates and this gave the dollar a slight boost today. It's really that simple.

Giving the dollar an added boost was USD+ Factory Orders and falling oil and gold prices. The 10-year briefly popped up over 4.00% again which also helped.

When you take your eyes off the lagging indicators and you put them on the market, not a historical image of the market, but on the actual market itself, all of these things become very clear, and this is why I always say things like "it's that simple" because it really is...

EUR/USD:

This might come as a shock, but I'm not even concerned about tomorrow's data releases... I am absolutely, positively focused on the real-time price action and will be totally focused on what Bernanke has to say tomorrow during his afternoon speech... this is all that matters to me right now.

I already know the fundamental shifting between the U.S. and Eurozone is happening. We told you months ago it would begin happening in the middle of this year.

It is imperative that you understand the market is going through a season of shifting fundamentals and shifting monetary policy between the Fed and ECB... it is imperative you recognize the Fed is now moving towards a more USD+ monetary policy and is beginning to address the inflation issue while the ECB should start turning more dovish on inflation and signal a rate cut soon.

While we're in this season of shifting fundamentals and shifting monetary policy the market is going to behave in ways that sometimes seem very odd and confusing. But, if you are solid on your fundamental views of the market, you should be gaining a clear understanding of this and how it's going to effect the EUR/USD in the months to come.

If things continue to move on this course the EUR/USD will not be in the 1.500's a few months from now... commodities should ease and the dollar should make some gains. What's happening now is certainly not a mystery to anyone here as we forecasted this months ago. But, it's happening now as we speak... it's playing out before our eyes. I hope you see it.

As far as trading goes please bear in mind we're in an NFP week and the market does odd things during NFP weeks. Unless I see otherwise I'm sticking to the very same gameplan... buying dips, shorting rises.

I see no need to change up my gameplan now because it's been working well and profitibly. This being said, I'm going to scale my trading back as we draw closer to NFP, and of course as we draw closer to Thursday's Trichet event.

I absolutely do not want to get stuck in a trade or get stuck in needless drawdown under these market conditions. I highly encourage you to be smart with your trades, smart with your risk and money management, and not to push trades.

Again, please do not overleverage your account under these market conditions as it could cost you dearly. If you're new here, don't even bother trading during this NFP week and use your time to read our forums and get caught up to speed on how we do things around here.

Most of you should have made tremendous profits so far this week -- well, don't give them back! Be smart!

EUR/USD Weekly Outlook 6/1 thru 6/6 2008

I hope you got some good rest over the weekend as this week carries a high probability to be volatile with all the key data we have on the books.

In addition to the ECB rate decision, Trichet press conference, and NFP, we also get tons of growth, production, and consumer data for both the U.S. and Eurozone. Plus, we get two speeches by Bernanke and a total of four speeches by Trichet. And if that wasn't enough, we also get speeches from Kroszner, Lockhart, Plosser, and Bullard.

Both the Fed and ECB will be talking about their respective economic situations, monetary policy, inflation, growth, and their economic futures. As you plan your trade week, don't forget to factor in the Fed and ECB's market-moving powers...

Thursday and Friday will be the most critical trade days this week. The ECB, Trichet, NFP, and the Unemployment Rate will take center stage. But don't expect the market to just sit around and wait for Thursday and Friday's data... we will be moving this week and we are inching even closer to a bigger extended move out of the relatively tight range we've been trading in the past 2-3 weeks.

Tomorrow:

As soon as Wall St. opens tomorrow we'll get Trichet's first speech of the week. I'm not expecting him to say anything earth-shattering tomorrow and he's not scheduled specifically to talk about monetary policy but it's important we listen nonetheless.

ISM is our big news on Monday. I'm not officially ready to call a bottom on the U.S. manufacturing downturn but I do believe the worst of the weakness has been felt by the economy and absorbed by the market.

Based on my research I believe we see the manufacturing sector begin to make some small gains and take back some ground that has been lost the past 12-14 months. Manufacturing employment has begun to stabilize, inventories are flowing more in positive territory, and prices paid are looking more and more inflationary... all of those factors are USD+.

The market will pay close attention to the employment and prices component in tomorrow's ISM data. With the continued high cost of fuel I would expect the prices component to print to the upside. Overall, ISM should print at or above market consensus.

The other thing to keep in mind with this week's fundamentals is the fact that we are starting a brand new month this week. Banks and traders have already squared their books for May and will be looking to re-position for the current month.

Certainly gold and especially oil will stay in the market's focus this week. Last Thursday crude inventories printed way to the downside but we didn't see a whole lot of reaction to the shockingly low number. If there is a reaction, it could come early this week.

Should commodities continue to push north and test the upside obviously this will keep the euro well supported vs. the dollar. If the opposite occurs, well, you know what the result will be...

Bonds:

I haven't said much about the 10-year the past few weeks mostly because it's been ranging as the market has been trying to figure out what to do with the euro and the dollar. But I want you to keep an eye on the 10-year this week.

The 10-year has been brought off life support and certainly gave the USD a boost last week as the yield made gains up above 4.10%. What does this tell me? Well, first of all, it only further confirms my opinion that the Fed is done cutting interest rates.

If the bond market wanted more rate cuts or thought that more rate cuts were coming we wouldn't be seeing the 10-year yield firmly above the 4.00% level right now. The moves in bond yields are such great overall market indicators, especially if you trade the EUR/USD.

EUR/USD:

Monetary policy, interest-rate connected fundamentals, commodities, and key price levels are all the flavor of this week's trading for the EUR/USD.

I'm still overall bearish on the euro but at this point on Sunday I have no reason to change up my trade plan. The euro has been falling at some key upside levels and the dollar has been falling at some key downside levels and this is why we've been in a range, floating back and forth through some precarious price levels.

Staying firmly above the 1.5380 level will keep any dollar gains capped for now, and staying below the 1.5800 level will cap any big euro gains for now. The dollar is still fundamentally weak but the euro is picking up more momentum to becoming fundamentally weak.

This is why Trichet's comments on Thursday will be so critical to the near-term future of the euro. Slowing Eurozone growth has kept Trichet unable to raise rates and strong upsides to inflation has kept him from cutting rates. I still believe we can see an ECB rate cut of 25bps before 2008 is done, but the market has not been given any real signals of this happening yet.

As far as trading goes, I will continue to buy the euro on dips and short the euro on the rises.

I don't have any key levels yet as the market is still several hours from opening, but overall, in order for the euro to make any real topside gains the euro will have to sustain a break of the 1.5670-1.5730 levels. If we make several repeated failures at the 1.5600 level this would be something to take note of.

I would urge you to be strict with your risk and money management disciplines this week. If you don't see a trade, don't take a trade. Wait for your price, wait for the market to come to you, and please don't make any knee-jerk trades. You do not have to be in the market every waking moment -- it's OK to be flat and to wait for the trade to come to you!

Be smart -- don't overleverage your accounts -- don't take dumb trades -- allow the trades to come to you...

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.