ProFXI EUR/USD Daily Update

Wednesday, January 28^th 2009

 

Today was one where the markets ran on pure emotion, fear, and greed... this was apparent as we saw the euro run up over the 1.3300 level on the back of better-than-expected German IFO data and speculation that the ECB will hold rates in February. Just a few short hours later after US Consumer Confidence printed at the worst level in the history of the report, risk aversion struck the markets and the euro took a nosedive along with crude and gold.

 

Overall I’m happy with the modest profits we were able to make today as the markets were behaving illogically and the price action was extremely choppy with a few sharp price swings scattered in. Once again I just picked a side to find a trade on, which was the short side of the euro. Many times when I see those false runs up like we saw today I think of it just like a liar lying…

 

Liars do everything possible to make you feel comfortable and to divert your attention from detecting they are lying, like making extra eye contact with you but it all becomes even more apparent the harder they try… the market’s price action is the same way… quick spikes and fast runs like we saw this morning many times will return back to the point of lift off and it’s all part of the human behavior psychology aspect of the markets and why I like to use human psychology to trade the markets.

 

My favorite central banker quote of the day is from ECB Bini Smaghi, from Italy:

 

“US Fed's 'zero rate' policy is a mistake”

 

FOMC:

 

We do get some German consumer and CPI data this morning but the only thing that matters to me is the FOMC interest rate event at 1415 EST/1915 GMT this afternoon. The eyes and ears of all major market participants will be on Bernanke as the world awaits the possibilities of new Fed programs to stimulate Wall St. and the global economic system.

 

There’s nothing the Fed can do on interest rates so the key aspect to tomorrow’s FOMC event will be the FOMC statement itself as market participants will be looking for any positive or upbeat rhetoric in addition to trying to decipher the Fed’s possible plans for interest rates in the coming months.

 

The risks of trading tomorrow before and after this FOMC event are extremely high. In my view, I see risk on the USD should the FOMC statement reference the decline in foreign capital flows for US Treasuries. I realize this is an issue with the Treasury Department but the Fed depends on the Treasury selling debt in order to fund Wall St. bailouts and treating the insolvency of the US financial system.

 

At some point somebody in the Fed or Treasury has to address the fact that foreign money flows into US debt have basically dried up. Nobody is buying and the Treasury has hundreds of billions more worth of debt it needs to sell in order to funnel cash to the Fed to keep the bailout programs going. I’m not exactly sure what happens when the debt you create out of thin doesn’t get purchased anymore but I’m of the opinion it would be a really nasty thing for the US dollar.

 

What could put the euro, gold, crude, and equities at downside risk and the dollar and yen at upside potentials is if the FOMC statement paints an even grimmer picture than previously painted by the Fed. If Bernanke decides to start feeling honest and forthright and he uses this FOMC statement to really let the markets know what an abysmal state the US economy is in and that the recovery is going to be longer than anticipated, we could see almost instant risk aversion hit the markets and this would translate into the euro and it’s friends selling-off while the dollar and yen rally.

 

The other potential with the FOMC statement is that Bernanke starts lying again and says something about housing finding a bottom in 2009 and inflation staying low, rates staying low, and markets recovering and that would be enough to send equities up which could take commodities and the euro up.

 

Another possibility is that Bernanke uses the FOMC statement to cause confusion in the markets… he could use rhetoric that would cause the markets to speculate on future rate policy, the health of the US consumer, jobs market, etc. If Bernanke wants the markets to keep running in circles for the next few weeks so the Fed can buy time in order to get a clue, Bernanke knows just what to say in the FOMC statement to let confusion continue to reign.

 

Those are the four main potentials I see existing for tomorrow’s FOMC interest rate event. As usual, it’s not a cut-and-dry “go long” or “go short” scenario, far from it. There will be enough liquidity with the bulls and the bears for us to see more erratic price swings and sharp moves in either direction. Don’t forget that the big bank movers can see market depth and order flow and they know when and how much liquidity it will take to get things moving in a certain direction.

 

My personal opinion for tomorrow is that the FOMC statement portrays a downbeat image of the US economy as a whole and points out the specific weakness in the consumer and jobs sectors. You really have to search high and low to find any bright spots in the US economy. Of course the healthcare sector remains solid but that’s because a bunch of Americans are unhealthy and now they’re losing their minds with the financial turmoil that’s only going to get worse in the weeks to come.

 

Wall St. may have a tough time hearing what the FOMC has to say and we could see another round of panic and risk aversion set in. That’s basically what I’m seeing for tomorrow. If I’m wrong so be it, I’m not a bull or a bear but I’ll be looking to capitalize on however the market decides to respond.

 

EUR/USD:

 

As I mentioned above, the only thing I care about for today is what happens with the FOMC event. The price action of the euro leading up to that event should remain choppy and inconsistent. That means it will be easy to get sucked into a trade only to see the market turn on you within a matter of just a few minutes – we’re in those types of conditions the next 24-hours…

 

I’m so bearish on the euro and the Eurozone economy I may stick to the exact same trade plan I’ve followed the past two days as it’s worked very nicely. Trading conditions will get more complicated after London opens and before the FOMC event but there will be potentials for profits.

 

The other factor we need to keep an eye on is surprise rhetoric out of the ECB or some bad news out of the European banking sector. I get the feeling something’s not right within the ECB or there’s some news that needs to come out of Europe, so I’m on the constant look out for that.

 

A few upside levels to watch: 1.3278 / 1.3299 / 1.3342 / 1.3388

A few downside levels to watch: 1.3182 / 1.3153 / 1.3118 / 1.3088

 

If market conditions allow, key levels will be posted after London opens. The liquidity levels will fluctuate quite a bit today as traders and market participants position ahead of the FOMC or square their books. Be smart with your risk and money management and get ready for the fireworks later this afternoon…

 

-ProFXI

ProFXI EUR/USD Daily Update

Monday, January 26^th 2009

 

The markets certainly had a busy start to the week as we saw the euro makes stronger gains against the dollar and yen while commodities took another look north. According to my forecast from last night, the EUR/USD and gold were both due for an upside move on Sunday/Monday and that’s exactly how things played out.

 

This evening a US congressional committee voted to elect tax-evader and former NY Fed governor Timothy Geithner as the 75^th Treasury Secretary in the history of the unconstitutionally formed US Treasury. The only thing that gives me solace is the fact that Geithner can’t possibly be any worse than Paulson.

 

ECB all-star Jean-Claude Junker was out and about today with these comments:

 

“I am unhappy with Forex volatility; Forex volatility will be discussed at next G7 meeting.”

 

The next G7 meeting is on February 14^th in Rome and I would expect some stronger rhetoric to come out of this upcoming G7 should the intense volatility seen in FX continues in the short-term. I would also expect to hear some rhetoric against the weak cable and strong yen. Keep an eye out for verbal threats on FX intervention the next two weeks…

 

Existing Home Sales printed with a strong upside surprise today but it hardly gave the Dow and S&P 500 much of a boost. I’ve already heard the first calls of a bottom in housing based on today’s number. Sorry, but it’s an anomaly and there is no bottom in the US housing market. The only reason existing home sales went up for the month of December is because the median home price keeps plummeting, now down 15.3% to $175,400 (biggest decline since the Great Depression). Home values will keep falling while foreclosures keep rising and this will give us some decent looking numbers on the surface but after reading between the lines, the US housing market remains grim.

 

EUR/USD:

 

The euro had a strong start to the week so far but I do see some risk for the euro this morning as we get the critical German IFO report. I have to forecast a print that comes in at or lower than expected. I don’t care that Barclay’s stock ran up today and more European banks like ING got bailed out, I remain bearish on the Eurozone economy.

 

The market can keep running the euro based on US and Eurozone interest rates all they want but I’m not convinced Trichet can keep rates at 2.00%. Trichet said he wasn’t cutting rates in February and that the ECB would revisit the idea at the March meeting. I’m not convinced he’s telling the markets the truth.

 

We will see some nasty Eurozone data this week and the more Trichet keeps playing games with the markets on the rate issue, the more it’s going to cause the type of volatility in the FX markets that makes Jean-Claude Junker so unhappy.

 

As I mentioned earlier in the chat, when Bernanke was acting weak Trichet emerged as the level-headed central banker, always there with some comforting rhetoric and a more balanced view of the market turmoil. Now we have a situation where Trichet is acting weak and confused. Trichet is no longer giving the markets the straightforward rhetoric we’ve been accustomed to.

 

To me this spells trouble within the ECB. Trichet’s inability to stop flip-flopping on the rate issue could mean there’s fighting within the ECB on how to handle rates going forward. We know how sensitive Trichet is to keeping rates in the Eurozone somewhat respectable and as far from the zero level as possible but I’m expecting we see at least another 50bps reduction before the end of Q1 2009.

 

The problem with bailing out all the sovereign nations in the EMU is the fact there’s no Fed-Treasury type setup in the Eurozone. For example, right now 31 out of the 50 US states are in full blown recession with the state of California just weeks away from total insolvency. Well the Fed and Treasury can step in to print money and measures can quickly be ushered through Congress to bailout bankrupt US states but it can’t work like that in Europe with the 16 sovereign nations… it’s just not set up to work like that in Europe.

 

I really don’t care how much the euro runs up against the dollar because my overall view on the euro is bearish and I see more dark times for the European economy. And this view ties directly into how we traded the EUR/USD today. Basically I waited until the euro ran up over 200-points against the dollar and then we started shorting at the 1.3180 level and higher, taking good profits on three trades today.

 

A few traders asked me why I didn’t buy the euro and ride it up. The reason why is this morning I picked a side, the short side, and I was just waiting for the market to run out of steam before I started shorting. That’s about all there was to it. Pretty simple stuff there I think.

 

In addition to German IFO we also get the Case-Shiller home price data and Consumer Confidence which I’m forecasting both print USD-. The data will take a backseat to all the other issues facing the markets. Obama and his crew should be out in full force tomorrow, so be aware of this in addition to surprise rhetoric from our friends at the ECB and our new fearless Treasury Secretary. It could be a mess tomorrow…

 

As far as trading goes, I’m going to call trades the same way I did today as it worked out well. A few traders were asking if I still plan on going to Europe at the end of February. I guess there were some concerns. So, here’s my actual flight itinerary in case anybody is thinking I wasn’t coming:

 

Nashville Metropolitan (BNA) to Chicago O'Hare International (ORD)
Departure (BNA): February 20, 2:12 PM CST (afternoon)
Arrival (ORD): February 20, 4:02 PM CST (afternoon)
Friday, February 20, 2009
Lufthansa # 9155
 

Chicago O'Hare International (ORD) to Amsterdam-Schiphol (AMS)
Departure (ORD): February 20, 6:04 PM CST (evening)
Arrival (AMS): February 21, 9:10 AM CET (morning)

 

My return flight is on Friday, February 27^th. If any traders plan on joining us please let me know so we can keep up with whose coming. You can reach me by email at: dmc12_13@yahoo.com.  

 

Today’s key levels will be released no later than the 0630 EST/1130 GMT timeframe. I think we’ll have some good trading opportunities after London opens, so I’m optimistic about a great day today. As always be smart with your risk and money management disciplines. These are the type of market conditions when using half of one percent used margin entries makes a lot of sense and is much easier on the emotions.

 

Keep an eye on these levels: 1.3205 / 1.3153 / 1.3103 and 1.3268 / 1.3297 / 1.3338

 

-ProFXI

I haven’t been posting on Forex Justice for very long but a few weeks ago Tony from Forex Justice asked if I would be interested in posting my market updates on the blog here. I was humbled by the invite and it took me less than half a second to take the offer. Based on the emails I get from here the response has been nothing but good which is unusual because most people like to pick a part my unconventional approach to trading the euro.

 

So on a personal note; I will be leaving ProFXI on Friday, January 30^th 2009. The main reason I am leaving is because I can no longer continue to trade under the atmosphere of a paid-subscription community. I don’t believe in it. I don’t believe in charging for what I do or the service provided. It’s impossible for me to be a part of something my heart’s not in to. Basically I think making people pay for trade calls and my own personal market analysis is dumb and I don’t want to be involved in anything like that.

 

Right now I’m in the process of launching a complete trading community that focuses on trading and developing traders and it’s all 100% free of any subscription-fees. To be honest the only thing I’m really doing is putting the money up to build the community. Very good friends of mine are the ones actually doing all the hard work to build the front-end and back-end for the new community. These guys are putting in a lot of hours and energy to get the new site up and running as fast as possible and without them it would never happen.

 

The new community is called VeriteFX and the website will be: www.veritefx.com. The target launch date is March 1, 2009 but I think we should be live before then. The last I heard from the web developer it sounded like our new chat room was already being tested and the features sound great including links for us to host live trading platforms, send SMSs, private messages, and a stable chat program that can handle many users.

 

As far as how the actual trading goes, I’m going to put out EUR/USD calls each week and there will be another head trader putting out EUR/JPY and GBP/JPY calls as market conditions allow for higher probability trades on those volatile pairs. Strict risk and money management disciplines will remain at the forefront of our trading and this means stop losses will be taken on my trade calls should real-time conditions show a change in market direction against the call. Take-profit targets will be given and the calls will be closed as they reach the profit-target.

 

The way I trade is that I look at every trade I take as a learning opportunity in addition to an opportunity to take something from the market and make a profit. This means if I put out a trade call on the EUR/USD I’m happy to explain what I’m seeing in the market to make that trade. That’s what our chat will be for, to answer those types of questions so we can all use the market to teach us how to become more consistently profitable traders.

 

Consistent profits are the net bottomline when it comes to trading. Trading will be the main focus at our new community and second will be education. I believe in making as much free information available to traders as possible. I’m not claiming my stuff is any good but I want it all out there free for the taking. On the new site there will be a spot for the daily and weekly EUR/USD updates and for the daily EUR/USD key levels in addition to whatever else I feel like writing about.

 

All the educational type stuff I’ve written so far can be found for free at www.fxiguidebook.com. There’s a lot of stuff on there so I would recommend reading the posts called Market Timing I & II. If you’re not feeling that stuff but probably won’t like any of the other stuff and I wouldn’t want you to waste your time.

One more thing about trading… there are no such thing as “secrets” to trading the EUR/USD or to making consistent money in the FX markets or any markets for that matter. Anybody that claims there’s some secret tool or secret priceless indicator is an idiot. Trading the market is simply picking a side to fight with and choosing that side based on how price is behaving and what that particular market’s correlated variables are showing.

 

Trading is not fighting the trend, trusting the price action, respecting support and resistance levels, and staying halfway clued in on geo-political events. Trading requires a lot of work and energy and is hardly the easiest job on the planet but its not complicated stuff when you break it down to the basics.

 

No matter what, the market will always be right. I don’t believe a trader even needs to be a bull or a bear on what they’re trading but it’s a matter of fighting with the market and not against it. That’s just how I view trading and approach the market.

 

That’s about it. I felt like I should be upfront about things so there are no misunderstandings. I’m grateful for the three months of trading at ProFXI and satisfied with the end results. So far those that know about the new VeriteFX community are nothing but 100% supportive which is nice. As long as Tony is cool with it I’ll keep posting the daily and weekly updates on the Forex Justice blog.

 

-David  

Before we get into the weekly outlook, a few personal notes... as far as my travel schedule is concerned right now I'm sitting in the Denver airport writing this week's update, waiting for my plane. I'll be back at home very late this evening as I have one stop off to make before I get home to Nashville. Between now and February 21^st I'll be at home with the number focuson trading and offering good analysis on the EUR/USD for traders as we enter the next phase in the markets after the start of the new year.

This past week I realized that I've been sitting in an FX trading chat room since the end of February 2007 until the present without so much as a total of two week's worth of vacation. All those who were freaking out this week because I took some personal time can get over it, I've paid my dues and put in the time, but now I'm back and ready to roll strong very the next couple of weeks until I go to Europe.

This is my last full week at ProFXI and my solemn promise is to put in an honest effort to find higher probability trades from Monday until Friday and close out this phase on a positive note. If there are times when I'm quiet in the chat it just means I'm focusing on the markets and the task at hand.

As far as the markets go, I have no clue what they did last week for the most part. The euro remained bearish, the yen remained bullish, and equities remained bearish just as we forecasted accordingly and traders who followed our advice to just simply short the euro on the rises and buy the yen on the dips have reported good gains for last week. Last week I was very clear on two things: don't short the euro below 1.2850 and don't buy it above 1.2950...

EUR/USD Fundamentals:

I'm writing this week's outlook having done limited research so far, however, at this point I'm not seeing anything fundamentally or geo-politically that could be a catalyst to cause a sustainable trend change for the EUR/USD for the 24-hours.

We do have quite a bit of critical data on the books this week for both the US and Eurozone. At least at the start of the week the biggest event by far is the FOMC rate decision and FOMC rate policy statement which happens at 1415 EST/1915 GMT on Wednesday.

Technically the Fed could move interest rates a few basis points lower as the so-called "trading band" for the Fed Funds rates floats between 0.25% and 0.00%. It's possible the Fed could drop the interest rate to an effective 0.00% and just open the floodgates for what is virtually free money hot off the printing presses.

I'm forecasting we see the Fed not make any moves on the Fed Funds rate but rather I see the FOMC voting on some sort of new measures or plan to make for the easier flow of credit in the money markets. The FOMC statement will likely sound as if Stephen King wrote it... the US economy is that horrific at this point.

As we head into Wednesday's FOMC policy decision it will be important to watch Treasury yields for signs the markets are becoming increasingly wary of the Fed and Treasury's ability to guide the markets through the next round of market turbulence.

I was just looking at how Treasuries traded on Friday and I see within the moves of Treasury yields that the markets may have little or lessening faith in Obama's ability to pull the US economy off life support. A friend of mine made a great point the other day... when Obama was running for office he promised a plan to create 2 million new jobs, then when he got elected he promised to create 3 million new jobs, and now the latest promise is that he will either create and or save a total of 4 million jobs.

If the Obama administration wants to keep hitting the markets with that kind of flip-flopping on one of the biggest issues facing the global economic system (jobs) it's going to erode whatever confidence Wall St. is trying to build up. The real question is, how can anybody actually quantify a saved job? If the economy continues the trend of shedding 500,000 jobs a month instead of 600,000 a month does that mean Obama saved 100,000 jobs? I didn't expect Obama to act like an idiot a week into the White House but I guess I was wrong.

On Monday and Tuesday I will be watching Treasury yields for clues on how the markets are feeling this week because if Treasury yields continue to rise while the Dow and S&P 500 continue to decline, we have a divergence there that could trigger the next leg down in this financial turmoil. There are several reasons why it could turn ugly if Treasuries go bearish along with equities...

First of all, if market participants pull money flows out of Treasuries and are too scared to buy equities this could be a sign of not just intense risk-aversion and outright fear but it could be the market's way of saying the supply of Treasuries exceeds the demand. The reason the market would think that way is because of all the debt the Treasury has to create to not only keep funding the TARP program but to do things like bailout Bank of America, send another $3 billion to Fannie Mae and Freddie Mac this week, and then of course to fund all of Obama's messiah programs in the coming weeks.

The other problem with a tag-team combo of bearish Treasuries and equities is that it would show more signs of credit freezing up again. It's no secret the credit markets remain mostly frozen but if market participants cannot get credit to buy what's considered the "safest" asset-class (US Treasuries) then we'll have a major problem on our hands.

All of those potential problems that are legitimately looming would translate into intense volatility in the FX markets, specifically with the EUR/USD, EUR/JPY, USD/JPY, GBP/USD, USD/CHF, and GBP/JPY. I stand by the belief the overall bullish Treasuries market is a bubble that is soon due to burst. I've personally never witnessed or traded through a bullish bubble burst in the Treasury market, so should we encounter that situation it'll all be new to me.

In August of 2007 the yield on the 10-year was trading around 5.25% and just a few weeks ago we almost hit the 2.00% level on the 10-year. In my view a decline of about 320bps in a matter of 17-months is a sign of a bullish bubble that's ready to pop because at some point the supply has to outpace demand and I think we're seeing the signs of this now. There's going to be a lot of Treasury supply on the market the next few months...

GDP-

On Friday we get the Advanced GDP for Q4. My forecast is that we get an absolutely abysmal number compared to the fudged number we saw for Q3. The decline in Advanced GDP should exceed the -5.00% level in my view. A print showing economic contraction of -4.00% or better is going to be a fudged number.

The markets should be rather prepared for nasty data this week, including a terrible GDP number. About 75% of GDP is derived purely on the activities of the US consumer, so without taking the time to explain the state of the consumer, which is obvious, all I have to do is use US retail, PCE, import/export, Durables, and jobs data to arrive at my extremely bearish forecast for GDP.

I realize Obama wants to pump $825 billion into the US economy by the end of February but the positive effects this will have on GDP will last a quarter or two at best and then we'll be back on train to Crapsville when that round of free money evaporates out of the economy.

So overall, I'm remaining extremely bearish on this week's US and Eurozone data. We do get a ton of it this week and it's all geared around some of the most beat-up sectors like housing, growth, employment, manufacturing, the consumer, and market sentiment. The data itself will give the markets little to work, so expect confusion to reign while some of the bigger numbers hit the markets.

EUR/USD:  

I'm entering the start of the week with no bias on the EUR/USD as I still have quite a bit of research to do for the week in addition to needing to see how the market reacts after we get Frankfurt and London's liquidity first thing Monday morning. That being said, I would urge caution against shorting the EUR/USD between market open and the open of London. I see a potential for the euro to make an upside attempt during the Asian session on Sunday/Monday.

Downside key levels to be mindful of this week:  1.2904 / 1.2855 / 1.2552 / 1.2467 / 1.2358

Upside key levels to be mindful of this week: 1.2998 / 1.3054 / 1.3177 / 1.3242 / 1.3328

Although I still have an overall bias against equities I believe the euro may be due for another upside attempt as long as we can sustain above the 1.2855 level, according to what I'm seeing in the markets. I would not short the euro below 1.2855 currently. If we do move back down for a 1.2855 test, a sustained break there should take the euro straight through the 1.2800 level and down to test the 1.2760 - 1.2740 levels.

The other market correlated variable I'll be closely watching this week is the USD Index. I noticed towards the end of last week the USD Index was back testing my key 86 levels again... going through my email this afternoon I see a few questions from traders asking me why I said not to short the euro below the 1.2850 level and the answer is because of where 1.2850 would have put the USD Index which was back up to what I see as a decent resistance zone at 86 on the USD Index.

A solid upside failure of the USD Index in addition to downside failures on the euro, gold, and crude can only mean one thing and it's not rocket science to figure out... speaking of commodities, I really have no clue what they did on Friday so I'll also be watching to see how crude and gold respond after London gets rolling. My overall bullish bias on gold remains after seeing it also fail to break below downside resistance levels.

That's all I've got for now, I need to jump on a plane in the next few minutes. I will be in the chat after London opens and before 0730 EST on Monday. I have one goal this week and that is to trade for profits and show a good return on Friday. I'll also try to spend as much time in the chat as possible this week. Key levels will be released no later than 0730 EST tomorrow.  

Don't expect any of the volatility and erratic price swings to magically disappear this week. All markets will remain severely ill-liquid which will give us the sharp price moves we've become accustomed to. That means all traders need to keep their emotions in check and not let the chaos of the markets win the mental battle. Risk and money management disciplines are imperative for trading this week and all traders should practice smart risk management.

-ProFXI

 

ProFXI EUR/USD Daily Update

Wednesday, January 21^st 2009

Growing up in the Baptist church you tend to hear some good apocalyptic preaching out of the book of Revelation. As a child I heard many sermons about how I'd likely see the end of the world during my lifetime and the return of the Messiah... is today the day? Right now I'msitting in the Nashville airport on a flight delay and every TV everywhere here is running sound bytes from Obama's inauguration followed with rhetoric from the commentators who are literally equating Obama with the Messiah.

I know that's the running joke about Obama but for the first time I'm actually seeing how the media is portraying the man in this light. I wanted to avoid this whole inauguration thing but it's unavoidable when you're trapped in airport and it's on all TVs and the whole world is talking about it. There's like only one redneck near me that's grumbling about all this but everybody else is in some odd state of euphoria.

What concerns me about this besides the fact it's disgusting to see any human portrayed in a such a ridiculous manner is that the financial markets are in for a big surprise when they quickly discover there won't be much Messiah-effect because they are an absolute mess right now and breaking down once again just as we forecasted they would in the beginning of Q1.

The S&P 500 is down over 6% for the month of January. On Tuesday the Dow closed under the 8,000 level as market participants are riding the panic train again. Guess where it's all rooted? With the banks and the credit and money markets... surprise, surprise.

I hope those presidential parties are good tonight and they all keep cheering. Rome's burning. I'm forecasting Wall St.'s lows from last November need a solid test once again and I see a higher probability for a look below those November 2008 lows.

To help me maintain my overall bearish view on equities is what I'm seeing with Treasuries so far this week. There could be more weird stuff going on with Treasuries. On Tuesday for example, while equities were getting sold-off, the yield on the 10-year held above the 2.45% level. If equities are selling-off and nobody is buying Treasuries, we could have a very interesting scenario fairly soon should that type of trend continue in the short-term... if, for example, the yield on the 10-year doesn't come back down to test the 2.00% and we see the Dow and S&P 500 break their support levels there's no telling what could happen with pairs like the EUR/USD, GBP/USD, and the crosses like EUR/JPY, GBP/JPY, and USD/JPY.

The US banking system is not the only one under renewed pressured. We continue to get more bad news out of Europe. Royal Bank of Scotland will now be 80% nationalized. RBS stock is down something like 75% this week. Not too shabby.

I think the ECB may be getting nearer to the point of being forced to make similar moves the Fed and Treasury have to sure up the banks. The bad news out of the European banking sector has been a long time coming but I'm glad it's finally here and we are justified in our forecasts on the substantial risks facing the European banking sector and how this will drag the euro down.

On Tuesday morning we got word from the Belgium finance ministry that Belgium is already planning a second banking bailout. I believe the European banking sector has only just begin it's own round of losses and write downs. In my view, at best the European banking sector is only 50% through their own turmoil and more losses are due from giants like Deutsche Bank, UBS, RBS, Credit Suisse and many others.

The ECBs were out in full-force talking doom and gloom in Europe. They are right in their assessments and it's good to hear the ECB finally coming clean about the economic issues in the EMU. Not only do I remain extremely bearish on the Eurozone economy but I'm bearish on European banks and will remain so until the markets show me otherwise.

Crude and gold made some extremely sharp upside moves which I imagine are due to liquidity issues and a lot of stops getting hammered. I was unconvinced about the strong upside gains made by gold and crude and so was the euro. At least half a dozen times in the chat I was clear that I'm biased to only short the euro on the rises and not to buy the dips. I didn't believe the moves we were seeing in commodities and as soon as they hit a top and retraced the euro would come right down with them. As of the writing of this update I see the euro has dropped to the 1.2840 level. We should see lower before it's all said and done this week.

EUR/USD:

My overall view on the EUR/USD is bearish and I will continue shorting the rises no matter what until further notice. I have no desire to buy the euro now and don't feel that's the smart trade. As I mentioned all I'm doing is picking a side to fight with and allowing my criteria to line up to call high probable trades. We didn't make a killing on Tuesday but we had three solid trade calls with almost no drawdown and quick payouts. That's how I like to do things under these extreme risk conditions and will continue to do this week.

On Wednesday Trichet is the star of the show in addition to whatever instant moves are made by the Obama administration during the first 48-hours of his presidency. Trichet is first scheduled to speak at 0300 EST/0800 GMT and he will be speaking specifically on monetary policy and economic conditions. Then at 0430 EST/0930 GMT Trichet will give testimony in front of the European Parliamentary Economic and Monetary Affairs Committee. Obviously that testimony is going to totally center around the European recession, banking worries, and the future of ECB interest rates. The risk that this even carries is 10 out of 10 in my view. You will want to consider this if you are trading during that timeframe.

Treasury Secretary-elect Timothy Geithner takes the stand in DC. He has to testify in front of some group called the Select Finance Committee. I have no idea who this group is but it's all political and if the testimony appears to be going wrong, Wall St. will likely panic again. Mr. Tax Evasion might have a rough go of things as Republican politicians may try to this as the first opportunity to give the Obama administration a challenge at the get go. That circus side show begins at 1000 EST/1500 GMT.

Fundamentally there's not much on the books but it doesn't matter as there are much bigger issues right now than data. I think Wednesday could be a big bloody mess in the markets with all that are going on politically, on Wall St. and geo-politically. So far at the start of the week risk aversion is the theme and panic is back in style.

I'm sure we will hear from Obama almost as soon as the hangovers from the inaugural parties wear off. He may try to soothe the markets which could back fire on him. Right now anything should be expected including more sharp moves and violent price swings. All traders should be smart with their risk and money management on Wednesday.

That's all I have at this point. As I mentioned I'll be in the Denver area the rest of this week meeting with some traders but I will be in the chat as much as possible and looking for high probable trades as time and the markets allow. Any important updates will be sent via SMS and key levels will be posted Wednesday morning.

-ProFXI  

EUR/USD:

 

Being en route back to Nashville for most of the afternoon and early evening I’ve not had an opportunity to do any research on what the markets did today, so I have no re-cap commentary to offer. As soon as I walked through my door this evening I ran to crank the heat up, dropped my bags, and then started writing this update.

 

The euro flat out took a beating today. I think the lack of liquidity had something to do with it as all US banks were closed for holiday. The biggest factor I believe is purely fundamental. As I mentioned last week we’re finally hearing the nasty secrets about the contracting Eurozone economy. What amazes me is how the market avoided reacting to Europe’s recession for so long. The abysmal news out of the European banking sector is likely the red flag that’s helped fuel the drop.

 

I could be wrong but I don’t believe the ECB can pull-off a Fed/Treasury-type move to bailout the various large banking institutions in each sovereign nation that is a member of the EMU. My understanding of the Maastricht Treaty should make a nationalized style bailout of the entire European banking system impossible. If traders are thinking along the lines I am, this could spell more bad news for the EUR/USD and more downside testing.

 

Both crude and gold took another hit today. Crude got it worse than gold but both have started the week with a bearish tone. Will tomorrow be one of those “turnaround Tuesdays”? It’s possible as Wall St. will be back in full-force and Obama puts his hand on the bible. I wouldn’t count out the potential Obama-effect of a temporarily euphoric Wall St. Very temporarily.

 

Fundamentally the EUR/USD is at strong risk with the ZEW reports. ZEW can get the markets jumping with some nice shorter-term moves. I don’t have a bias on this data because I haven’t had time to do my normal research. Obviously a worse than expected print on either German or Eurozone ZEW would likely send the euro on another look lower as both Frankfurt and London will be active when the data is released.

 

Last week I said not to short below 1.3050 and I feel the same way right now. That being said, I’ve only had my eyes on the market for as long as I’ve been writing this update. The 1.3050 level remains very key according to my view on the euro. I believe its point of decision type level along with 1.2970/1.2850 on the downside and then 1.3170/1.3240 on the upside.

 

I believe the euro has resumed a bearish tone but I have no bias right now. I still think crude’s a mess and Wall St. is in trouble. I think the fundamentals will get worse, the liquidity will remain low, the sharp price swings will continue, and the markets will still be the markets…

 

I’m going to get a few hours of rest and then get my eyes on the markets because I’m ready to trade and I want to make some money on Tuesday. Key levels will be released no later than 0630 EST/1130 GMT. Any important updates will be sent via SMS. Be smart with your risk and money management tomorrow as its possible the Obama inauguration and the various geo-political events going on around the world will contribute to strong market volatility.

 

-ProFXI

ProFXI EUR/USD Daily Update

Thursday, January 15^th 2009

 

As I see it, there were two distinct themes for today – the first was very visible signs of strong economic stress in the Eurozone, not just fundamentally but within the European banking system. This morning we saw Eurozone Industrial Production print its lowest year-over-year decline on record: -7.7%. In the European banking sector, Deutsche Bank reported a Q4 loss of euro4.8 billion (USD$6.8 billion) leaving the bank with a 2008 net loss of euro3.9 billion.

 

This morning Standard and Poor’s downgraded Greece’s sovereign debt, putting downside pressure on the euro yet again. S&P lowered Greek debt down one step to A-. If sovereign European long-term debt continues to face downgrades and negative credit watches, the euro could be doomed in the near-term because the US will not face any downgrades on Treasuries. I can almost assure you politics would not allow for a credit downgrade on Treasuries under current market conditions. But the risks for sovereign debt in the Eurozone are running high and this could put a serious hurting on the euro.

 

Those traders who have been reading my commentaries for the past year know how vocal I’ve been about the issues I know exist with the overall Eurozone economy and within the European banking sector. Up until this month we really had little information to go on in the US. The Europeans have done a fine job making sure the focus stays on Wall St. and away from their issues across the Atlantic. The issues with HSBC, Deutsche Bank, UBS, and Credit Suisse are only the start.

 

The other distinct theme was Wall St.’s continued weakness. From yesterday’s update:

 

I’m not a Wall St. expert but after being down five consecutive sessions, the market will be nearing a point of decision to make a move and the move could be up if the right triggers exist, otherwise the bears should be able to do their thing and push equities towards another support level test.

 

The Dow took a beating today closing down almost 3%. It was set-up to take a big hit as it continued to struggle above the 8500 level. The S&P 500 futures took a beating along with gold. Crude had a manic day as usual. That thing is still a mess and will remain a mess as long as the markets remain a mess. The panic on Wall St. led to continued yen strength across the board. Have we heard this song before?

 

Core Retail Sales and Retail Sales both printed worse than expected as we indicted would be the case. The numbers are ugly and I’m not going to waste any time explaining why… if there’s any confusion, all a person needs to do is observe their local mall and shopping areas. They are dead, like an apocalyptic plague hit them.

 

This afternoon we got the Fed’s latest Beige Book release which looked like a Jackson Pollock painting – a big mess of “what in this world is this crap?” As I see it, the type of stress displayed in the markets and the type of confusion that’s clearly visible in the price action of the euro, gold, crude, equities, and bonds will continue indefinitely.

 

Add the geo-political events to the overall market turmoil and we’re in for difficult conditions for the foreseeable future. For example, this morning Citi announced they are moving up their earnings report release day to 16 January instead of 22 January.

This sudden change is not the type of thing market participants like, it makes them nervous and nervous market participants are one of the main catalysts for choppy and disjointed price action. So now we have all this speculation on why Citi made that move. Does the move have something to do with the Obama inauguration? In other words, does Citi need to drop a bomb on the markets right before Obama gets in so that Obama bails them out ASAP? These situations will do the markets no good in terms of instilling confidence and order.

 

Today the yield on the 10-year moved to its lowest levels of the year. Money flows hit Treasuries as traders fled the Dow and S&P 500. With my overall bearish view on Wall St. remaining intact, I believe we can see Treasury prices potentially make another bullish run in the short-term.

 

But enough about those issues, we need to focus on the only event that matters tomorrow…

 

ECB and EUR/USD:

 

My forecast for tomorrow’s ECB rate decision is clear:

 

Rate hold – low probability

25bps cut – medium probability

50bps cut – high probability

75bps cut – low probability/unexpected

 

What I cannot predict is market reaction. What I can predict is a high probability for an extreme amount of volatility and sharp price swings before, during, and after Trichet’s press conference. Should Trichet pull an unexpected move, like a hold on rates or a 75bps cut, the euro should make an extended move of at least 180-points but potentially more on the order of 220-points.

 

The reason why I am forecasting those moves is because of the built-up anticipation for tomorrow’s ECB rate decision in addition to the continued complete lack of liquidity and the correlated moves that will be seen in the commodities and equities markets based on Trichet’s decision with rates and his rhetoric at the ECB press conference.

 

My gut tells me Trichet has to make at least a 50bps cut tomorrow. I see no other way around it. Europe wants a bigger cut; the world wants a bigger cut. Global market participants are growing weary of Trichet’s continued hawkishness on inflation and stubbornness to move aggressively on rates.

 

What would an aggressive rate move mean for the euro? It could mean the euro makes an upside gain on the back of positive market sentiment towards the Eurozone. Of course a rate cut that strengthened the euro would defy logic and the basic underlying fundamentals of how markets function but we threw logic out the window quite some time ago.

 

Unless my criteria lines up to show me otherwise, I will urge caution on adding any fresh new EUR/USD shorts prior to the rate decision and especially prior to Trichet’s press conference which will be watched by all global markets. Mitigating risk should be the theme for retail FX traders tomorrow.

 

That being said, I feel confident the market will offer a profitable trading environment tomorrow amidst the chaos. Capitalizing on the volatility and potential extended price moves will depend upon traders using their instincts and specific trade criteria. As I mentioned in the chat this afternoon, I plan on actively trading the ECB rate event should the market provide me with a trade opportunity.

 

I will have no trade bias for tomorrow although right now I feel caution against adding any new EUR/USD short positions especially as we draw closer to the 0745 EST/1245 GMT rate decision and Trichet’s press conference at 0830 EST/1330 GMT. You can watch Trichet’s press conference here:

 

http://www.thomson-webcast.net/de/dispatching/?ecb_090115_stream_video

 

I encourage all traders to tune in and listen to Trichet. He holds the power to move the EUR/USD whichever way he sees fit. As far as Trichet’s tone and rhetoric is concerned, this is another thing I’m not going to speculate on. Trichet is a great performer and natural in front of the microphone and the global markets. Whatever his current agenda is will be made known through his rhetoric tomorrow and hopefully we’ll be able to capitalize on it by reading between the lines.

 

Besides the ECB rate event, there are a ton of fundamental data releases on the books for tomorrow. Eurozone CPI, US PPI, Initial Claims, Empire State Index, Philly Fed Index, and speeches from Fed Evans, Lockhart, and Yellen. It could be a wild day tomorrow. I think the Initial Claims could be uglier than last week’s…

 

The 1.3170 level remains key in my view. I believe as long as the euro can maintain a sustained break above that level that some topside testing remains possible. We saw a strong rejection of a 1.3100 break but we’re also seeing very little upside momentum and the euro has been unable to hold on to any significant gains.

 

That being said, with the sharp moves in crude, gold’s beating, Wall St.’s sell-off, and all the bad news coming out of Europe I’m shocked to see the euro still hovering around the 1.3200 level. That’s something that defies logic… maybe it’s a sign of some decent euro buying interest or maybe the bears are just waiting to hammer the euro tomorrow morning.

 

Key levels will be sent via SMS as normal tomorrow but I caution all traders to use proper risk and money management as the risks will be extreme.

 

-ProFXI   

ProFXI EUR/USD Daily Update

Wednesday, January 14^th 2009

 

As traders in the volatile spot FX market there are many traps we can easily set for ourselves and fall right in to. At least for me and the way I trade, this week the markets have been extremely disjointed and difficult to read making it a struggle to find high probability trades.

 

When faced with these types of conditions one of the worst traps we can fall into is looking for the profits instead of the trade. Instead of looking for the trade or allowing the market to reveal the trade it’s very easy to start looking for the profits first.

 

And in the midst of this search we happen to pull the trigger on a trade. When the focus comes off the market and on the money, traders can easily get sucked into the market going the wrong direction and that’s never a fun place to be.

 

When I find myself in this place the best thing I can do is walk away from the markets, get some fresh air and put my mind on other things and off the market. Even a break of just a few hours can really provide a time of refreshment and clarity.

 

That’s just something I wanted to share from my own personal experience in the markets…

 

Overall it was another day where each market correlated variable drifted up and down and wandered aimlessly through different price levels. As I noted in yesterday’s update, if the euro breaks the 1.3280 level it would make its way through 1.3200 for a dip below. We didn’t freefall but we did make it through the 1.3200 level before NY even opened.

 

We made two initial bounces at our 1.3198 key level and that gave way for a few solid tests of our 1.3170 key level which eventually broke only to resume it’s spot as support as the euro made it’s way back to the 1.3250 level in early Asia. According to the key levels I gave this morning, I still have the 1.3170 as an important support level and key price zone. Keep an eye on that one. Should it give way, we need to watch 1.3121 to 1.3078.

 

Crude made a nice comeback today while gold made a modest gain. The Dow has now closed down five straight sessions losing 6.7%. The S&P 500 on the other hand closed in the green today and I believe this factor helped keep the EUR/USD from a freefall all the way down to 1.3100.

 

I’m not a Wall St. expert but after being down five consecutive sessions, the market will be nearing a point of decision to make a move and the move could be up if the right triggers exist, otherwise the bears should be able to do their thing and push equities towards another support level test.

 

EUR/USD:

 

Mr. Trichet was a big disappointment as he gave no clues or signals on what the ECB will do with rates. My forecast is for at least a 25bps cut with my highest probability on a 50bps cut. We’ll cover the ECB rate event in the next update.

 

Bernanke was the star of today’s show. He had a lot to say and was more candid and straightforward than usual.

 

He spoke for awhile but I wrote down his most important comments:

 

“Overnight Federal Funds Rate cannot be reduced much further”.

 

Early in his speech, Bernanke was explaining the various ways the Fed and FOMC can us their rhetoric to instill certain market and consumer expectations which in turn have a direct affect on the money and credit markets. When you read between the lines, Bernanke is basically saying that it doesn’t matter if the Fed Funds Rate is 0.00% because the Fed can still manipulate and price-fix interest rates to levels the Fed is comfortable with.

 

“The monetary base has risen significantly as the Fed’s expanded its balance sheet. We see little risk of inflation in the near-term, we expect inflation to moderate. The Fed will have to unwind its lending programs. The unwinding of the programs will act as the Fed tightening monetary policy”.

 

Here Bernanke is telling the markets that the Fed Funds Rate will stay around 0.00% for the foreseeable future and if the Fed feels it needs to control the money supply once the $2+ trillion in freshly printed USD becomes an issue, the Fed can use its various bank holding and reserve programs to manipulate the money supply and hopefully alter any inflation-causing affects. Sure…

 

The only thing I care about is what this all means for the USD. Anybody with half a brain cell can clearly see its all USD- but that doesn’t mean the dollar is going to bear the brunt of the Fed and Treasury’s actions in the near-term. The ranging we’ve been watching the dollar do against the euro can easily continue indefinitely even though the Fed’s programs are terribly USD-.

 

Speaking of Fed programs… in case you’re interested in seeing if your bank is getting a taxpayer-funded TARP bailout, click this link:

 

http://www.treas.gov/press/releases/hp1352.htm

 

The Trade Balance data was certainly an upside surprise but the number is almost meaningless, what the number represents is the important fact – that number is telling me the whole world is basically shut down. The US consumer isn’t buying from China and the world consumer isn’t buying from the US and that’s a big problem.

 

As far as the EUR/USD is concerned, overall price action remains to the downside. I would caution against buying the euro until the market shows more clarity and order. If current conditions continue I see no reason why the euro won’t continue to drift lower, especially as buying interest dries up ahead of the ECB rate event.

 

Should the S&P 500 take a hit tomorrow or sometime this week we should expect to see the EUR/JPY make another move to the downside and likely dragging the EUR/USD with it. Fundamentally we get Eurozone Industrial Production which I’m forecasting to print at or worse than expected. For the US we have Retail Sales which should be pathetic, Crude Inventories, and the Beige Book which will paint more doom and gloom for the US economy.

 

With trading, the risks are when market participants square up and position ahead of the ECB’s rate event on Thursday. I expect to see continued sharp price swings and erratic price action. If I don’t see a trade I like, I’m not taking a trade. Very simple.

 

At the beginning I gave some downside levels. On the upside, take note of: 1.3268 / 1.3297 / 1.3318. As usual, key levels will be sent via SMS along with any other important updates.

 

-ProFXI

ProFXI EUR/USD Daily Update

Tuesday, January 13^th 2009

 

This wasn’t exactly the most logical start to the week, at least not for me. Overall today’s EUR/USD price action was confusing, disjointed, and un-correlated to the typical variables that contribute to its ups and downs.

 

More liquid market participants were clearly on the sidelines today as it was a retail trader’s paradise… this wasn’t quite the case with crude and gold as each commodity took a respective beat down. In less than a 24-hour period gold lost over $40 and did some testing well below the $820 level. Last week we saw a textbook short-squeeze on the GBP/USD and this morning I believe we saw a bull-trap scenario play out that was fueled by heavy stop loss triggering along with gold bears piling into short gold contracts for quick gains and then exiting.

 

The euro had some drama of its own today as it took a nosedive down to a strong support zone around the 1.3280 level. I missed this and had to know why I missed it and what exactly caused the market to make that sharp downside price swing.

 

What I missed was the news that S&P was considering a downgrade on Spanish sovereign debt. Had I caught this come over the wires I would have immediately mashed on the short button. But I let myself get beat by the market this time, lesson learned. I connected the exact time the S&P story hit the market and the exact time the euro did an about face from the 1.3420 level to drop to the 1.3280 level and they match perfectly.

 

Back to the real story… S&P says they could possibly downgrade Spain’s debt as early as this month. In addition, they also gave strong warning on Greece and Ireland’s sovereign debt. On this news and speculation of an ECB rate cut on Thursday, German Bund yields tanked as market participants on the European bourses piled into Bunds. According to Credit Suisse’s ECB interest rate forecast, they are calling for a 100% probability of a 50bps rate cut and I tend to agree with that high probability.  

 

Trichet and EUR/USD:

 

Tomorrow morning Trichet is the star of the show. All markets will be listening for any clue whatsoever on what he’s thinking about rates. Don’t expect to get a straight answer; we will need to read between the lines tomorrow if even makes any reference to rates at all. Trichet is scheduled to speak at 0400 EST/0900 GMT, just in time for London to get rolling…

 

The other big issue out of Europe we need to monitor is how the market’s going to react to the mega stimulus package out of Germany. What I know about the markets tells me an economic stimulus plan of this magnitude and the connotation it sends to the world should be EUR-. The total for this newest plan is said to be euro50 billion (USD$67 billion) and that’s on top of a euro23 billion stimulus package in December.

 

Of course the issue with Spanish, Greek, and Irish sovereign debt instruments is an issue that needs to be closely monitored. Spain is the fourth largest economy in the Eurozone and an S&P downgrade on its sovereign debt could put another hurting on the euro. Even speculation about additional downgrades on sovereign debt in the Eurozone could cause a sharp euro sell-off.

 

Trichet’s counterpart, Bernanke, will speak at 0800 EST/1300 GMT tomorrow. It’s been weeks since we heard from the bearded-one and this will be his first official public speech in 2009. Bernanke’s speech is just as critical as Trichet’s because the market is hungry to hear what Bernanke is thinking at the start of the year, especially in light of Wall St.’s sluggish start to 2009. Bernanke is scheduled to speak on economic and monetary policy in addition to commenting on the current state of the global financial crisis and measures the Fed will take to ensure “stability”.

 

Equities continue to show signs of weakness as we suspected they would. Our view has been very cautious on the bull side of Wall St. in addition to being cautious on crude. It’s possible the market may be in a lull waiting for Obama to put his hand on the bible and start raining dollar bills on the US economy. Today the S&P 500 was down 2.3% which also helped lead the EUR/JPY and EUR/USD lower and remain to the downside.

 

I did some research I feel like sharing with traders – the last time crude as at the $37 level the euro was at the 1.4000 level and this was on the very last day of 2008. The Last time gold was at the $820 level the euro was around 1.4600 (mid-December 2008) and at right at that time crude went from $49 to the $43 level.

 

Prior to today, the last time the euro hit support at the 1.3280 level it bounced back to the 1.3700. That was just last week actually. The euro made a strong bounce once again at the 1.3280 level this morning before recovering all the way back to the 1.3420 level only to fall back down towards the 1.3300 level at the time of writing this commentary.

 

In my view, that 1.3278 key level I gave this morning is an important support and testing zone. Should we see a sustained break here it’s possible we see the euro freefall through the 1.3200 level. With Trichet, Bernanke, Trade Balance data, and continued strong volatility in equities and commodities, I am forecasting we see an extended move tomorrow as opposed to the type of tighter ranging we saw all of NY’s afternoon session.

 

In early Asia I see the euro’s momentum remains slightly to the downside and that the euro is able to hold on to downside gains with less upside retracement. I’ll be watching these price patterns play out as we draw close to Frankfurt and London.

 

The risks will be high tomorrow so I urge all traders to use smart risk and money management… keep your losses manageable and don’t get greedy when a trade shows you a good profit. There was no inter-day trend established with the EUR/USD but its entirely possible Trichet and or Bernanke will say a few choice words to set the market on an established inter-day trend which will provide opportunity to take some decent profits from the market. I’m open to fighting for either the bulls or the bears tomorrow.

 

-ProFXI

ProFXI EUR/USD Weekly Outlook

January 11^th to January 16^th 2009

 

It was cold and rainy in Nashville on Saturday when I wrote this part, fyi…

US gloom and doom:

Here’s a copy and paste from Friday’s update:

My NFP forecast is a net job loss print of between -528K to -633K and for the unemployment rate to rise to 6.9% to 7.2%. An overall better than forecasted print or a print under the -500K level would likely be considered good. I’m not sure how definable good is under current market conditions but in my opinion it would be good to see something under -500K.

Non Farm Payrolls printed at -524K and the unemployment rate printed at 7.2%. That NFP print was considered good by EUR/USD traders as we saw the dollar take command of the euro, pushing the pair down to the 1.3400 level from the 1.3700 level. Fortunately our NFP trades showed a decent profit on Friday.

Right now the US economy is faced with the worst jobs market since 1945 when WWII ended and soldiers came home from overseas to nothing. An interesting generation arose from those times, so I’m sure something interesting will arise from this current situation facing the global markets.

They say in some respects people are a product of their generation. I was born in 1975 which was apparently a difficult time in America. So in the first stage of my life I grew up in the 1970s, then in the 1980s which was totally different (and lame), and then the next phase was the 1990s which was 1000x cooler than the 1980s, and then a whole new world after the 9/11 event.

Guess what? Each one of those decades from the 1970s right through the present day had a nasty recession. Coincidence? Of course not, this is just human behavior patterns and history repeating itself. Kids that grew up in the 1990s and 2000s are in for the shock of their lives this year. They’ve all had it real good for real long and things have changed almost overnight. America saw many years of prosperity under the Clinton and Bush administrations.

Young people that came up through the ranks during those years had a rapid acceleration of new media, technology, pop culture, and an easy access to that which seemed taboo to my generation. I honestly have no idea how these kids are going to survive in this type of environment. Their parents are up to their necks in debt and the threat of lean times due to the rapid deceleration in the housing and jobs markets. I’ve been traveling a lot lately and I observe everything and everyone around me and I see only a few adapting to the “new world”. A wake-up call is coming soon…

In the past 12-months the US employment sector has shed 2.8 million jobs and there are 11.1 million total unemployed. I am seeing slight stability in the health care and education sectors but all other sectors remain to the downside and further losses will increase as the year goes on. The US service, hospitality, retail, and small business sectors will get decimated this year.

Unemployment is going higher than 7.2%. I wouldn’t call 7.2% the tip of the iceberg but it’s not the bottom either. Many are forecasting unemployment to rise to 10.8%. I’m forecasting unemployment stays under 9.7%, based on what I’m seeing currently in the jobs market. Obama is going to create jobs out of thin air in 2009.

Besides the millions of government jobs that get created, the entire non-government jobs sector will continue to lose jobs during all of Q1. Employers will have to start hiring before we see the employment numbers turn around and I don’t see any signs of employers scrambling for employees these days.

It gets worse… according to the latest data the average work week is at all-time lows. This means employers are cutting back on hours for those who actually have a job right now. Workers who were normally getting an average of 38-hours a week have seen their hours reduced to 30-hours a week or less.

Consumer credit dropped by $7.94 billion in November which is at lows not seen since 1943. This is all very simple… banks aren’t lending, people can’t get credit, credit standards have tightened, and the consumer has seized up because they can’t use their home as an ATM machine anymore.

Over the weekend I watched the political news shows on CNN, BSNBC, Fox, Bloomberg, and ABC. Most of the shows had the same beat up analysts and commentators who called it wrong last summer and fall and are calling it wrong now. These old dinosaurs are calling the bottom to the markets and that everything is headed back up.

Traders always ask me who we can trust for the truth. I can’t really say because I’ve stopped reading everything by every commentator. I’m not interested in anybody’s opinions right now. I can’t believe anybody’s interested in my opinions to be honest. But, I’ll watch the financial network shows for the entertainment value and to get an overall gauge of what the gurus are saying so that I know to keep doing the opposite.

I tell traders to read Livermore and Ecclesiastes, that’s my recommended reading material. I agree with much of what is said by Nouriel Roubini and John Mauldin. I like some of what Peter Schiff says as long as he doesn’t go too far off the deep end. Andrew Bush from Bank of Montréal says some good stuff.

Of course Rick Santelli at the Chicago Board of Trade and Art Cashin from UBS are pretty cool. Chief Economist Steve Liesman should be one of those filing for unemployment benefits soon, maybe only in a perfect world though. That’s my current list for those who’ve asked.

When you have former basketball player and politician Bill Bradley, who looks like he’s carrying twins in his neck, telling the world how to fix the financial markets, you know things are completely out of whack. I’m not forecasting any end to the current turmoil this month or next.

Government spending can’t fix a recession; it only hastens the start of the next one. Global economic conditions will continue to deteriorate once the Obama hangover sets in. If the central banks and politicians would just take their hands off the markets and let them slaughter each other, things will go back to normal a whole lot faster. It would be nice to just get it over with and start from scratch.

EUR/JPY:

On Friday I put out a EUR/JPY call and at the time I didn’t think much about it but apparently it caused some uproar. Not bad uproar, good uproar. I guess I didn’t explain what was going on. Sorry, I don’t always think things like that through but at least we made money on it.

Back in November I promised we would add new pairs in 2009, namely GBP/JPY and EUR/JPY. Now we have a new EUR/JPY trader. From here on out I will be trading the EUR/JPY in addition to the EUR/USD. At this point the EJ calls will be purely inter-day trades. For the benefit of those who are new and unfamiliar with how I categorize trades:

Inter-day – an inter-day trade is typically opened after 1501 EST/1001 GMT and closed by 1659 EST/2159 GMT the next day. Inter-day is basically when the market “re-opens” and then “closes” the next day; a 24-hour trade period.

Intra-day – an intra-day trade is typically opened and closed anytime within a 72-hour timeframe. It’s a 72-hour window of opportunity to take profits or a loss on the trade. Intra-day trades can be opened and closed within minutes if market conditions warrant and they often do.

Swing – a swing trade is typically kept open longer than 72-hours and will exceed at least 100-points in profit.

There are a few reasons why I’m going to call EUR/JPY trades. First of all, I trust almost no one in the FX game. When it comes to trading, I trust God and myself, that’s it. And as far as the community is concerned, I’m not going to bring in a Charlatan.

It’s only been two years since I place my first live money trade in the FX markets but during this brief time I’ve met enough crack heads, scam artists, conspiracy theorists and mentally unbalanced individuals to last me a lifetime. I’m not complaining though, I’m fascinated with the bizarre; bizarre and FX are synonymous.

I believe the best course of action for the community is for me to take the time and energy learning the EUR/JPY and to be the one in control of those calls. The only fundamental factor that I will ever consider with the EJ is interest rates. I’m taking a technical approach to the EJ. I won’t use the textbook techs like Fibonacci, moving averages, or anything like that. I won’t even look at an EJ candle chart. I’m going to apply my own systematic way to trade the EUR/JPY just as I do with the EUR/USD.

When I make an EJ call the following criteria is what’s used to determine the trade:

·         EUR/JPY 30-minute price openings

·         Real-time EUR/JPY price action

·         Real-time S&P 500 price action

·         Price action movements with the S&P 500 futures contract

·         EUR/USD 30-minute price openings and overall EUR strength/weakness

      ·         Geo-political factors (if they arise)

The EJs 30-minute price opens and the moves I see in the US equities market are by far the two biggest determining factors for when I take a trade. I have to be honest and reveal that the EJ call I put out on Friday was only the second time I ever placed a live money EJ trade. The first time was the day before. I’ve never traded it on a demo either.

I’m not going to demo my EJ trades; it’s either live money or nothing for me. I don’t believe in using demo’s other than to learn the platform of your broker. Demo’s aren’t reality… the broker doesn’t chase you, stop hunt you, put a lag on your execution times, give you bad fills, slippage, etc. A trader experiences none of that on a demo. Live money trading is a totally different world, its reality and I prefer to stay within the realms of reality.

That being said, if you want to take the EJ calls on a demo instead of risking real money, more power to you. Don’t let my own philosophies on trading cloud your risk and money management thinking. I like to let life and the markets teach me what I need to know. I never learned anything using a demo, the market has taught me all that I know and I want the market to teach me how to trade the EUR/JPY as good as I trade the EUR/USD.

Until I get a decent track record under my belt I will be making small entries. At the start I will likely just make 100K entries and as my confidence and consistency grows I will increase the amount of usable margin I’m willing to risk. I can’t promise anything at all for the EJ calls. We may go days or a week between calls; maybe we’ll get two a day, maybe nothing for a month. It is what it is.

After trading the EUR/USD for two years and consistently beating it under vicious trading conditions I need a new challenge before I get bored of trading FX and have to try something new. I think the EJ is enough of a challenge to hold my attention. The EJ is either going to beat me or I’m going to beat it and only the market will decide.

Trading the EJ was not my idea. Towards the end of last year a good friend suggested I take a look at it and gave me the confidence to believe I can trade it. I guess we’ll find out. Worst case scenario, I’ll be a few dollars poorer but have some great tales to tell. A rolling stone doesn’t gather moss.

EUR/USD and Trichet:

Between now and Thursday, at least for me, it’s all about the ECB, Trichet, and interest rates. My forecast is for Trichet to cut the ECBs key lending rate by 50bps, dropping it to 2.00% vs. the Feds effective interest rate of 0.00%. The question is what matters most right now? Is it the euro’s continued net positive yield differential against the dollar? Will the dollar rise because it’s likely the US is the first to recover from the recession and start raising rates again? These are some of the issues market participants will need to work through as we lead up to Thursday’s ECB event.

If Trichet decides to just dip his toe in the water and do a 25bps cut or he thinks rates are fine at 2.50% and he leaves the key lending rate unchanged, there’s really no telling or predicting what the EUR/USD will do. Logic would tell me the euro should make a strong upside gain against the dollar but as we all know, applying logic to these markets isn’t always the best course of action.

I believe there’s going to be a tremendous amount of speculation in the markets this week about how Trichet will handle rates on Thursday. The past two weeks Trichet and his ECB comrades have been toying with the markets by speaking out of both sides of their mouth. Maybe the Fed and ECB just want the EUR/USD to trade in a range while the global markets work out their issues.

Traders are asking my opinion about the dollar. Because of the way I trade, some of the day-to-day moves of the EUR or the USD really don’t matter much. But overall it’s my opinion the dollar should be in for some dark days. If I had to pick a side I’d say my long-term view on the dollar is bearish. This doesn’t mean my long-term view on the euro is bullish.

Since the start of the financial turmoil the Treasury has printed over $2.1 trillion in fresh USD. With Obama’s plan to create 4.1 million new jobs, cut taxes and give tax credits, create a $1.1 trillion economic stimulus plan, bailout the automakers, and establish socialized healthcare, I can only see a tragic world for the US dollar. At this point I feel like we’re playing a Monopoly game here.

At least another $1 trillion in fresh USD will need to be printed during Q1 of 2009. That means the Treasury will need to create more debt out of thin air but who is going to keep buying US debt? With the Chinese and Japanese economies facing recessions of their own I don’t think they will be sending billions into low-yielding/high-priced Treasuries in the near future. That’s a problem for the US government deficit, which could be a problem for the value of US Treasuries, which could turn into a real big problem for the dollar.

Speaking of bailouts and the dollar, the other day I was talking to my mail lady and she said in 2008 the US Post Office lost $2.8 billion and every time gas goes up a penny it costs the Post Office $1 million in added fuel charges. I have a feeling the Post Office might be next in line for a bailout. The mail lady said retail business at the Post Office is the slowest she’s ever seen it. This mail lady is so old I think she’s been around since the Pony Express days so I’m sure she’s seen it all.

USD fundamentals—

Back in the summer I forecasted one the worst holiday retail seasons in recent memory. Last week even Wal-Mart reported weaker than expected retail sales numbers. On Wednesday we get US retail sales data and I am forecasting a worse than expected print which will put Wall St. to the test again.

Traders should also note that we get several Fed speeches this week… Lacker, Lockhart, Yellen, Plosser, and Evans. It’s been awhile since we’ve heard any jawboning from the Fed so it’ll be interesting to hear what kind of tone the market manipulators takes this week.

Trichet—

Before we even get to Thursday’s ECB event we have two speeches by Trichet. I can assure you all global market participants will have their eyes and eyes on Trichet looking for any possible clue or sign about the ECBs rate decision. Trichet has purposely left the markets confused and full of speculation.

Trichet will be speaking on Monday and Tuesday this week. It’s extremely rare for Trichet to have even one speech the week of an ECB rate event prior to the actual event. I don’t like when things get out of order like that because when the pattern is broken, it confuses the markets and then we get volatility and wild price swings.

As far as the EUR/USD and trading is concerned, I’m entering this week with no bias one way or the other. It doesn’t matter to me if the market is bullish or bearish on the euro. My trading and risk plan calls for almost the exact style of trading I did last week and this is purely due to the risk posed by Trichet and Thursday’s ECB interest rate event.

Keep in mind GBP/USD traders who were bearish on the pound got short-squeezed at least three times last week that I observed and I don’t even trade that pair. I see no reason why the market can’t pull a move like that with the euro just as it did with the pound last week.

I expect the liquidity to remain low which means the volatility will remain high. The risks will be high this week, especially as we draw closer to Thursday and Friday.

Create yourself a solid risk and money management game plan for this week so if you get in trouble you know what to do. And when you find yourself on the right side of the trade how you’re going to prevent yourself from getting greedy and having the trade turn against you.

Holland trip:

The dates that I’ll be in Holland are confirmed for February 22^nd until the 26^th. The purpose of the trip is to meet with traders in Europe to do teaching and live trading. This is very informal and unofficial but open to any traders who can make the trip to Holland. We will be at the Hotel Bilderberg which is located near Arnhem. Their website:

http://www.bilderberg.nl/uk/hotels/hotel-de-bilderberg/

So between Sunday the 22^nd and Tuesday the 24^th I’m there to spend time with traders and it would be great for as many as possible to join us. With the global recession and fears of unemployment, many part-time traders have said finances make it impossible to do any travel which is understandable. I don’t expect a large group but I know a few traders from France, the UK, Holland, and the US indicated they will be there.

If you have any questions or you would like to confirm you plan on being there, please send Andre an email at: profxiseminar@gmail.com. If you’re going to attend please let us know and do not show up unannounced.

I don’t have an official agenda for our get-together but I think it would be great if as many traders from as many different countries, cultures, and walks of life could join us, that would make me happy and I think would enhance our time.

That’s all for now… any important updates will be posted in the chat and sent via SMS.

-ProFXI