FX Insights Trade Team Update

By FX Insights Moderator,

Sorry for the delay in getting today's update posted... was a crazy day with meetings and such.

As far as the EUR/USD is conerned, we had an extremely boring day... tight ranges, no decent price action... once again the Dow stumbled, which didn't help matters.

So I'm going to use today's update to cover a few things that are on my mind in regards to the market and the EUR/USD... some food for thought stuff...

One question that is on many trader's mind is why we're not seeing a lot of volatility or decent price action the past week... there are a few factors contributing to the market being seduced into a lull...

Lets start with risk aversion... banks, hedge funds, institutions, wealth managers, and traders are simply not taking on risk under current market conditions. With all the uncertainties of a U.S. recession, global recession, slow growth coupled with rising inflation, central bank fears, tightened credit markets, shaky equities, an unstable employment sector, and a cautious consumer sector, those big money players are playing things ultra tight and conservative.

Prime example -- the carrytrade... the carrytrade is off the table for now. Once this extreme risk aversion set in, that opened the door for pairs like the EUR/JPY, USD/JPY, and GBP/JPY to drop hundreds, if not thousands of pips... the yen has strengthened tremendously while the market is in extreme risk management mode and fear mode... it won't be this way forever, but for now, expect those once brave risk takers to play it safe.

So how does this season of risk aversion effect the EUR/USD? Quite simple... for the big money players it's not an attractive buy while at the same time it's not an attractive short... with the banks being on lockdown and the institutions dealthy afraid of taking more losses, buying the euro at 1.4800-1.4900 is not going to happen... the alternative would be to buy the dollar, and with the dollar remaining fundamentally weak and the prospect of the Fed cutting rates further, who seriously would buy the dollar right now?

The market is in desperate need of not just a good, but a safe reason to either buy the EUR/USD or short the EUR/USD. The central banks are not helping matters either... both the Fed and the ECB is keeping the heavy EUR/USD bears in hibernation for now... with the Fed in a rate cut cycle and with the ECB remaining hawkish on rates and price stability, euro bears are not going to push the EUR/USD down, they really can't at this point.

Fundamentally, the U.S. economy has shown little signs of life. In the Eurozone the coming economic slowdown has yet to begin, which is another factor why we're just floating in a tight range...

Hopefully this sheds some light on why the market is behaving the way it's been behaving the past week or so...

EUR/USD trading:

I believe the market is also in a holding-pattern as we wait for Thursday's ECB rate decision, and more importantly, Trichet's press conference...

Early tomorrow morning we have key PMI and retail sales data out of Germany and the Eurozone... PMI may come in above forecasts while retail sales could possibly dissapoint, regardless, I don't expect this to have any major market moving effects...

Later in the morning we get very important ISM Non Manufacturing data, which I believe we should see come in USD+... whether or not the market decides to make any big moves is not something I'm looking at, but I'll certainly be prepared for...

As far as trading goes, I remain euro long -- cautiously long -- this means unless we get a signal I and I feel comfortable, I am in no way, shape, or form adding any euro longs at these levels... all of my longs are below the 4750 level and I'll keep it that way for now... any moves above the 1.4900 level would be an area I'd like to add a euro short, should price allow...

I do have some key downside/updside levels:

Downside key levels --

4801
4783
4752
4738
4708

Upside key levels --

4852
4878
4893
4920
4954

Lastly, in today's Q and A session we talked about the Team doing more live trade calls in the chat... I'm going to do a post on exactly what and how this will work...

Posted below is a chart from two calls we made last night and early this morning, just to give you an idea:

Click on Image

That's all for now... we'll see ya in the chat!

-FX Insights