By FX Insights Moderator,
For this trade week we have a four-headed beast to do battle with:
1. U.S. & European Growth Fundamentals
2. Equities
3. Securities
4. Central Bankers
Lets start with number one and work our way down as we try to devise our battle plan for the week ahead...
Fundamental Data:
Last week we saw the market take the EUR/USD down 200 pips twice... this is not a common occurance and something to take note of as we prepare for this week...
On Friday some dude from OPEC talked about denominating oil out of dollars and into euros, which caused that spike in the late afternoon... where did we bounce? At 4550. And if you remember last week we told you several times that the 4550 level is a key level to either keep us pushing lower lows or to allow the euro to make a recovery... we'll talk more about key levels later, though...
As far as this week's fundamentals go, the reason why it's such a critical week is because the market is so intensely focused on Europe's growth situation... the market is looking for any and all signs that growth is destabilizing, that it's weakening, and whether or not this weakness will be enough for the ECB to cut rates soon...
Monday -- key Eurozone growth data by way of French and Italian industrial production data. Forecasts show some recovery there from the previous data release... I'm not quite of this opinion...
Tuesday -- ZEW... I think in the ZEW data we'll see further deterioration of Europe's investor sentiment because of weakening economic conditions... the signs of this weakening sentiment have been there for several months and I believe it's not playing out right before our eyes...
If European investors continue growing wary of economic and financial conditions in the Eurozone this could likely lead to safe-haven buying of bonds, which would negatively impact the value of the euro against the dollar... just something to keep in mind.
Wednesday -- things pick-up on Wednesday... the two biggest pieces of data is the Eurozone Industrial Production number and the U.S. Core Retail Sales... I expect both pieces of data to disappoint to the downside, which will only further confuse the markets... there's really been no sign of much recovery in the U.S. retail sector... my research shows consumers are continuing to tighten their purse strings.
U.S. consumer credit is way down! Consumers are not borrowing either because they can't get a loan, they are loaded with debt and have nothing else to borrow with, they are out of a job, they are about to get their home foreclosed on, they are scared to take on new debt, or a combination of any or all of the above... it's a very tough situation and these factors are certainly weighing heavy on U.S. retailers.
Thursday -- this is where we really get a look at the growth situation in Europe as we get German, French, and Eurozone GDP data... I believe we'll see growth contracting from the previous month in this GDP data, which will not be EUR supportive at all...
Later in the morning we get the U.S. Trade Balance which seriously needs some help... the USD's continued weakness and worthlesness should help the Trade Balance and I'm expecting the data to be USD supportive...
Initial Claims has been quite weak all year long and I see no reason why we're going to get an upside surprise on Thursday... layoffs are continuing and there's no signs of this slowing...
The other keys for Thursday are speeches by Bernanke and Trichet... Bernanke is testifying before the Senate Banking Committee and he's scheduled to speak on the economic outlook and monetary policy... the market will be listening intently to both Bernanke and Trichet for any clues and signs on interest rate policy and growth outlook...
Friday -- tons of data on Friday... most of Friday's data is USD-related... growth, inflation, foreign investments, industrial output, and consumer sentiment... is that enough for you for one day?
I'm going to reserve any commentary on Friday's data for later on this week in the Trade Team updates as I've got much more research to do on what Friday holds...
Lets move on to equities now...
Equities:
Equities is the second head of our four-headed beast we're going to do battle with this week...
I believe the correlation between the Dow, S&P/500 and the EUR/USD will stay in play this week... equities are in a precarious spot right now... have they hit a bottom? Is there more room down to go? Investors will be trying to figure this out...
The way I see it, it's pretty simple... should the equities markets make a recovery this week and see some upward momentum and upward gains, I think this will be highly supportive of the EUR against the USD...
If money flows out of equities again this week, this will likely keep the USD pressure on the EUR... I'm not an equities expert nor do I trade them, so I can't predict what those markets will do this week, but I do know how those moves can effect the EUR/USD, so I'll certainly be watching very closely...
Securities:
Have you been watching U.S. bond yields lately? If not, you might want to this week... the 10-year yield in particular has made a roaring comeback from its lows in the 3.30's... on Friday the 10-year yield closed at 3.65%... if the bond yields keep rising, this should keep the USD supported against the EUR...
Central Bankers:
For most of the week, the Fed's henchmen will be on the speaker's circuit... the market will be listening for any clues on further Fed cuts or to see if the Fed is going to start getting hawkish on inflation and scale back the talk of keeping more cuts on the table...
Same goes with the ECB and Trichet... is Trichet going to stay dovish the next few months? Is he going to signal rate cuts? The markets will be watching and listening all week...
Over the weekend the ECB's Almunia talked about concerns over the euro's strength...
Of course we had the G7 meeting with the central bankers... I've already posted the key points from this meeting, so please take a look at that info... I expect we'll see some fallout in the market from this G7 meeting...
EUR/USD Trading:
As far as trading goes, I'm not heavy short nor am I heavy long... we're close to that key 4550 level... I believe in order for the euro to make a recovery, it's going to need to sustain a break above 4550...
If the euro stays below the 4550 level, it keeps the doors open for more downside testing and correcting... other key downside levels are the 4440 are and the 4380-4360 area...
I remain overal biased to more downside testing, but as I said, I'm not loading the boat with shorts and I'm playing the shortside extremely tight and cautiously because I know this week's fundamentals and those other variables we talked about could easily send the EUR/USD back up toward the 4750 level...
Best advice is to look for those relatively safe intraday trade opportunities, using 1% or 2% entries, taking a few pips per trade, and mitigating your risk during these times of uncertainty and no clear directions...
As we did last week, we'll look for some high probability live trade calls to put in the chat, but only if the opportunity for a lower-risk trade presents itself to the Trade Team...
There's a few posts you'll want to take a moment to read:
The Yen -- the market's untamed beast
Our 1-year anniversary message
FXI's Fundamental Test Part II
That should take care of things for now... again, practice strict risk and money management as we have a potentially volatile and crazy week ahead... each and every day this week holds heightened potential for volatility and price swings...
-FX Insights
1. U.S. & European Growth Fundamentals
2. Equities
3. Securities
4. Central Bankers
Lets start with number one and work our way down as we try to devise our battle plan for the week ahead...
Fundamental Data:
Last week we saw the market take the EUR/USD down 200 pips twice... this is not a common occurance and something to take note of as we prepare for this week...
On Friday some dude from OPEC talked about denominating oil out of dollars and into euros, which caused that spike in the late afternoon... where did we bounce? At 4550. And if you remember last week we told you several times that the 4550 level is a key level to either keep us pushing lower lows or to allow the euro to make a recovery... we'll talk more about key levels later, though...
As far as this week's fundamentals go, the reason why it's such a critical week is because the market is so intensely focused on Europe's growth situation... the market is looking for any and all signs that growth is destabilizing, that it's weakening, and whether or not this weakness will be enough for the ECB to cut rates soon...
Monday -- key Eurozone growth data by way of French and Italian industrial production data. Forecasts show some recovery there from the previous data release... I'm not quite of this opinion...
Tuesday -- ZEW... I think in the ZEW data we'll see further deterioration of Europe's investor sentiment because of weakening economic conditions... the signs of this weakening sentiment have been there for several months and I believe it's not playing out right before our eyes...
If European investors continue growing wary of economic and financial conditions in the Eurozone this could likely lead to safe-haven buying of bonds, which would negatively impact the value of the euro against the dollar... just something to keep in mind.
Wednesday -- things pick-up on Wednesday... the two biggest pieces of data is the Eurozone Industrial Production number and the U.S. Core Retail Sales... I expect both pieces of data to disappoint to the downside, which will only further confuse the markets... there's really been no sign of much recovery in the U.S. retail sector... my research shows consumers are continuing to tighten their purse strings.
U.S. consumer credit is way down! Consumers are not borrowing either because they can't get a loan, they are loaded with debt and have nothing else to borrow with, they are out of a job, they are about to get their home foreclosed on, they are scared to take on new debt, or a combination of any or all of the above... it's a very tough situation and these factors are certainly weighing heavy on U.S. retailers.
Thursday -- this is where we really get a look at the growth situation in Europe as we get German, French, and Eurozone GDP data... I believe we'll see growth contracting from the previous month in this GDP data, which will not be EUR supportive at all...
Later in the morning we get the U.S. Trade Balance which seriously needs some help... the USD's continued weakness and worthlesness should help the Trade Balance and I'm expecting the data to be USD supportive...
Initial Claims has been quite weak all year long and I see no reason why we're going to get an upside surprise on Thursday... layoffs are continuing and there's no signs of this slowing...
The other keys for Thursday are speeches by Bernanke and Trichet... Bernanke is testifying before the Senate Banking Committee and he's scheduled to speak on the economic outlook and monetary policy... the market will be listening intently to both Bernanke and Trichet for any clues and signs on interest rate policy and growth outlook...
Friday -- tons of data on Friday... most of Friday's data is USD-related... growth, inflation, foreign investments, industrial output, and consumer sentiment... is that enough for you for one day?
I'm going to reserve any commentary on Friday's data for later on this week in the Trade Team updates as I've got much more research to do on what Friday holds...
Lets move on to equities now...
Equities:
Equities is the second head of our four-headed beast we're going to do battle with this week...
I believe the correlation between the Dow, S&P/500 and the EUR/USD will stay in play this week... equities are in a precarious spot right now... have they hit a bottom? Is there more room down to go? Investors will be trying to figure this out...
The way I see it, it's pretty simple... should the equities markets make a recovery this week and see some upward momentum and upward gains, I think this will be highly supportive of the EUR against the USD...
If money flows out of equities again this week, this will likely keep the USD pressure on the EUR... I'm not an equities expert nor do I trade them, so I can't predict what those markets will do this week, but I do know how those moves can effect the EUR/USD, so I'll certainly be watching very closely...
Securities:
Have you been watching U.S. bond yields lately? If not, you might want to this week... the 10-year yield in particular has made a roaring comeback from its lows in the 3.30's... on Friday the 10-year yield closed at 3.65%... if the bond yields keep rising, this should keep the USD supported against the EUR...
Central Bankers:
For most of the week, the Fed's henchmen will be on the speaker's circuit... the market will be listening for any clues on further Fed cuts or to see if the Fed is going to start getting hawkish on inflation and scale back the talk of keeping more cuts on the table...
Same goes with the ECB and Trichet... is Trichet going to stay dovish the next few months? Is he going to signal rate cuts? The markets will be watching and listening all week...
Over the weekend the ECB's Almunia talked about concerns over the euro's strength...
Of course we had the G7 meeting with the central bankers... I've already posted the key points from this meeting, so please take a look at that info... I expect we'll see some fallout in the market from this G7 meeting...
EUR/USD Trading:
As far as trading goes, I'm not heavy short nor am I heavy long... we're close to that key 4550 level... I believe in order for the euro to make a recovery, it's going to need to sustain a break above 4550...
If the euro stays below the 4550 level, it keeps the doors open for more downside testing and correcting... other key downside levels are the 4440 are and the 4380-4360 area...
I remain overal biased to more downside testing, but as I said, I'm not loading the boat with shorts and I'm playing the shortside extremely tight and cautiously because I know this week's fundamentals and those other variables we talked about could easily send the EUR/USD back up toward the 4750 level...
Best advice is to look for those relatively safe intraday trade opportunities, using 1% or 2% entries, taking a few pips per trade, and mitigating your risk during these times of uncertainty and no clear directions...
As we did last week, we'll look for some high probability live trade calls to put in the chat, but only if the opportunity for a lower-risk trade presents itself to the Trade Team...
There's a few posts you'll want to take a moment to read:
The Yen -- the market's untamed beast
Our 1-year anniversary message
FXI's Fundamental Test Part II
That should take care of things for now... again, practice strict risk and money management as we have a potentially volatile and crazy week ahead... each and every day this week holds heightened potential for volatility and price swings...
-FX Insights
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