Trade Team Update – – 8/4/08

August 5, 2008 at 4:45 am Leave a comment

By FX Insights

Trade Team Update – – 8/4/08

Today’s market action was so crazy and disjointed I had to step away from my computers early this afternoon, clear my head, take my mind off the market, and focus on more pleasant things…  

But now we must focus on the FOMC as it’s potential puts both the euro and the dollar at risk tomorrow for very distinct reasons. 

First, lets re-cap today’s events… all USD data printed to the upside today, which capped any euro gains. You may recall the euro made a quick spike up this morning, but what I was seeing within that price action was short contracts being taken, which drove the price up “artificially”. And I believe these short contracts were being taken in preperation for this week’s Fed and ECB events. 

That spike up hit my 1.5632 key level to the pip and totally ran out of steam to push any higher… and those that have been following my updates should have easily known I was shorting at those levels and I’ll be holding those fresh shorts into tomorrow’s FOMC. 

I have to mention commodities as well. With the Personal Spending data printing lower than last month’s reading, this sparked a sell-off in the crude pits which in turn brought gold down, which in turn brought the euro back under the 1.5580 level. 

Enough history, lets talk about the future now…

FOMC:

To be honest, I don’t see tomorrow’s FOMC rocking the markets in Biblical proportions… yes, the market will move, the market will react, we will see price swings, we will see volatility. 

But, the Fed is not going to move on rates and it’s my opinion that Bernanke is going to temper his words and not say anything to cause any major upheaval.

Bernanke cannot possibly be anything but dovish on growth, employment, housing, the consumer, and overall economic conditions. Economic conditions have further erroded since the last FOMC meeting. But, what has changed is the price of a barrel of crude. 

The Fed’s market manipulation between the last FOMC meeting and this one has worked to beat crude down, drop gold, and push the USD up to manageable levels. 

The Fed and the economy is in no position right now to handle a skyrocketing, rapidly appreciating dollar. The Trade Balance and Current Account cannot deal with a fast strengthening of the dollar. 

Wall St. is in no position to handle rate hikes… the housing market would completely implode if the Fed upped rates. Unemployment is at a 4-year high and the economy has been bleeding jobs all of 2008. 

I do expect to hear hawkish tones on inflation, but they will use the phrase “inflation expectations” and we won’t hear any reference to actual, physical, real life, day-to-day, hit-you-in-your-wallet inflation that the American consumer is suffering from. 

Here’s where the EUR is at risk: what can the Fed possibly tell the markets that they don’t already know? Can the Fed paint a picture any uglier than it already is? I think you can see where I’m going with this… 

My opinion is that no matter what the Fed says, the USD is going to keep strengthening and keep beating up on the euro. Of course anything is possible in this market, but I think the only way the USD can give up any significant gains against the EUR is if the Fed reveals new and damaging information on the U.S. financial system and on U.S. banks. 

As I said yesterday, I cannot predict nor will I speculate on what the FOMC statement is going to say, but my feeling is that when it’s all said and done, the USD wins and the EUR loses… sure, it might not be an instant move, it may take a few days or a week, but my view is that all risk is on the EUR with this FOMC.

For tomorrow it’s all going to boil down to what Bernanke says in the statement… and the key is how Fed Funds Futures responds to the rhetoric in the statement… Fed Funds Futures is a great indicator post-rate meeting to get an idea for what the market intends to do with the EUR/USD. 

Needless to say, I’m pumped and I’m ready for any FOMC madness. I’m tired of these dumb ranges and I’m ready for either the USD or the EUR to get a proper beating… I don’t even really care which one gets it, I’ll make money either way. 

EUR/USD:

It shouldn’t be too hard to figure out my gameplan… I’ve been bearish on the euro for a better part of two months, this has been no secret to FXI, and I will be shorting the crap out of the euro on any rises we get… 

So far on this drop the 1.5520 level remains strong. It was tested last week and held and right now it appears to be holding again. And when we bounce back up off these levels I’m shorting again, and shorting again, and shorting again… 

I’m shorting any rise the market will give me because those are silver platter trades that will pay off even if they go into drawdown.

Right now I don’t have much to say about the EUR/USD because it all hinges on what the FOMC tells the markets tomorrow. Clearly we’re seeing market players position themselves short but this doesn’t necessarily mean much to me. 

There are too many idiots that trade this market and they are always losing, so I don’t really care what the market sentiment is, my number concern is the fundamental aspect of the market, namely the FOMC. 

Believe me, Ben Bernanke doesn’t have a candle chart open with Fib lines and moving averages while he’s crafting his speech and preparing the FOMC statement… he’s not taking into consideration where the trend lines are and correlating that to what he’s going to say in order to respect tech indicators… sorry, but that’s not how things work in this market. 

This is why the underlying fundamentals of the market are so critical and why price action is king and will always be king. 

I can’t expect the FOMC to make things any clearer to the markets tomorrow, but I will be watching and dissecting nonetheless, and of course depending upon the price action to lead the way. 

You know what’s at stake tomorrow, so prepare… if I see anything in the market I will update accordingly. Be smart…

-FX Insights

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+1 Risk/Money Management Technique Trade Team Update – – 8/5/08

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