FX Insights Trade Team Update 14/02/2008

By FX Insights Moderator

A few days ago in our update (2/12) we covered some of the signs the market was showing us and how the signs were beginning to show the market wanted to take the euro back up after making a 400 pip correction...

Based on some things I observed in the market today, I believe we've been given very good confirmation that the euro found solid support in the 4500-4480 level and could possibly attempt to move back towards the 4750 level to test further upside...

The main driving force behind today's momentum to move up and test the 4650 level was Bernanke and Trichet... but, we'll talk more about those two in a moment, first, let's talk about some of the key fundamentals today...

Early this morning we got German, French, and Eurozone GDP which came in as expected and forecasted, and this certainly took away some market fears about slowing European growth -- but remember, that data is somewhat lagging, so we could see a different story...

U.S. Trade Balance came in way hotter than expected, and as we forecasted this USD+ number was the result of the dollar's continued weakness... Initial Claims, on the otherhand, came in below expectations showing further signs of a real recession happening... in addition, continuing claims were ugly again, and this certainly has put renewed pressure on the dollar...

Here's where the fundamentals come into play on a day like today -- Trade Balance was great economically and USD+, but the market couldn't react too strongly dollar positive because the sole reason we saw a hot number was due to the dollar weakness and not because demand for U.S. goods are increasing...

Then the Initial Claims data was just a great "reminder" to the market of how bad things are, taking away and desires to buy dollars and sell euros...

But the real story of the day is what Bernanke and Trichet had to say...

Bernanke -- I can sum up his speech in a few lines... Bernanke basically told the markets that the economy sucks, it's getting suckier, there's no hope it will get un-sucky in the near term, and I'm probably going to cut interest rates by at least 25bps in March to keep Wall St., banks, and Jim Cramer from crying like babies...

Trichet -- I can sum up his speech in a few lines as well... Trichet told the markets I'm hellbent on maintaining price stability, I'm worried about wage-induced inflation, I'm worried about consumer inflation, I'm not budging on interest rates, and I'm not worried about growth, so shut up and stop asking me...

Bernanke: over-the-top dovish
Trichet: over-the-top hawkish
Equals: EUR/USD going to 4650 today

For now, the central bankers have set the table... and now it's the market's turn to respond... Bernanke gave the market zero reasons to buy the dollar while Trichet gave the market every reason to keep buying the euro -- at least for now... he's going to give the market some reasons to sell euros, but that is still yet to come...

The other confirmation we need to consider is the fact we're now firmly entrenched above the key 4550 level... if you remember from the last half dozen or so updates we said in order to re-open the door to move back up, the euro would have to sustain a break above the 4550 level and I think this has finally been confirmed today, based on price action...

As you well know, the market has been trading in a rather confusing and odd range after we shorted the euro down to the 4400 level... we've since moved up 200 pips, but it's been a bit of a struggle to do so and quite "strang" how we've gotten back to the 4650 level...

We'll talk more about trading in a moment, but lets look at tomorrow's fundamentals:

There's quite a bit, but the biggest will be the Empire Index, Import Price Index, Net TIC Flows, and Michigan Sentiment... I really don't see too many USD positives coming from tomorrow's data... I don't expect any real upside surprises...

If my suspicions about what I saw in the market today, I suspect we should see the EUR/USD push for higher gains tomorrow... and as this relates to trading, I will likely have to buy the dips and not risk a short and not risk getting caught on the wrong side of the market...

The price action is still rather "methodic" and we're still trading in fairly tight ranges, so the longer we do this, the higher the probability grows we need to see a bigger move soon...

The euro's just been plodding along after forming support at 4480... the market will not trade within this slow, tight range for too much longer... pattern's are showing that it's getting close to move again...

And it's for those reasons that I will remain very tight and cautious with my trades, taking 20 to 30 pips per trade, then getting out and not keeping my accounts exposed to risk...

I do not like the way the market has been behaving, I don't like knowing the market is confused and unsure about what it wants to do... I don't like trading in a market that is hesitating to drive the euro long or is hesitating to push the euro short...

When the market is trading with this type of mentality and clearly displays these kinds of psychological traits, it greatly enhances how exposed to risk we as traders are, and for this reason, I'm playing it tight, depending on price patterns, not overleveraging my accounts, and I'm certainly not going to try and catch a big move, even though I'm certain one is coming...

Anyway...

We did have another successful live trade that was opened and closed this morning for some quick and easy pips:

Click on Image

Again, please practice very strict risk and money management as we head into tomorrow's trade day...

Also, for yen traders, don't forget the BOJ issues their interest rate policy and statement... you'll want to pay attention for this... with the yen's rapid appreciation the past few weeks, the BOJ could certainly say some things to manipulate prices... just an FYI...

See ya in the chat!

-FX Insights

FX Insights Trade Team Update 13/02/2008

By FX Insights Moderator,


Yet again we have another tame day in the market... but, we have some things to discuss and consider...

First, lets talk about today's retail data -- to my surprise and the market's surprise, the data was a big upside surprise... we did see the euro back-off initially, but I think we saw limited downside as the market was probably thinking the same thing I was: downward revision coming next month...

I don't believe those numbers at all, but hey, I have to play the hand I'm dealt...

As far as Eurozone industrial data goes, as we forecasted, it disappointed to the downside, coming in at -0.2% vs. an expected 0.5%. Once again we have more proof and evidence that growth is slowing in the Eurozone and this will put pressure on the ECB to cut rates at least once this year... stay tuned as this story continues to play out in the weeks to come...

Fundamentally, we have a monster day tomorrow. We start with key German, French, and Eurozone GDP, and I do mean this is key as GDP is a tremendous measure of growth... I'm not convinced we'll see any mega downside disappointments as this data is somewhat lagging as it relates to the real-time growth situation, but I'm certainly not going to be surprised if the data comes in softer than expected as growth is certainly slowing in Europe...

Then we have U.S. Trade Balance, Initial Claims, Bernanke, followed by Trichet...

With the USD remaining terribly weak, I would suspect a decent Trade Balance, the key for the USD is for the Trade Balance to come in at or lower than expected... a softer number would keep additional pressure on the dollar vs. the euro...

As far as Bernanke and Trichet goes, I have no clue what they will say... either one could make things sound really good or really bad, so it's anyone's guess... lately, Bernanke has remained dovish on economic conditions and dovish on interest rates... Trichet has started growing more dovish on growth but remains hawkish on rates... so, prepare for anything!

EUR/USD:

As we spoke about yesterday, the euro is trading within a somewhat confusing range... it's still making higher lows, but again, we bounced hard off of 4600 and came down...

We flirted around the 4550 key level, eventually to move up and stay over during the duration of the NY session, but as I type this, the euro's moved back into the 4560's...

I have to assume the market is waiting for tomorrow's big data... but the longer we stay in this tight and weird range, the higher the probability grows that we need to make a bigger move soon... maybe the market will wait for tomorrow of Friday to do it...

I'm trading the range and playing things extremely tight... I only took two trades today, which is about the least I've taken in a single trade day all year, and I will certainly not keep my accounts exposed to any risk heading into tomorrow's big fundamental day, I suggest you do the same...

Price Action:

Staying on the recent topic of price action and using EUR/USD 30-minute price openings, I'd like to give you another perfect price pattern that played out right before our eyes this morning... we were discussing it in the chat and I know quite a few traders took a trade based on this price pattern and took some easy profits from the market...

Here's what we observed:

At the 10:00 a.m. price opening, we saw the euro make a bottom in the 4530's and then move up to the 4580's... leading us to the bottom of the range was a very consistent consecutive pattern of lower half hour price openings, and it played out beautifully to show us what the support was and where to get in on a good euro long that would pay at least 20 pips... this pattern, of course, paid out much more than 20 pips...

6:00 a.m. -- 4592 (high opening of range)
6:30 a.m. -- 4587 (1st lower opening)
7:30 a.m. -- 4584 (2nd lower opening)
8:00 a.m. -- 4582 (3rd lower opening)
8:30 a.m. -- 4581 (4th lower opening)
9:00 a.m. -- 4574 (5th lower opening)
9:30 a.m. -- 4544 (6th lower opening)
10:00 a.m. -- 4538 (7th lower opening/euro reaches bottom)

So, holding true to typical EUR/USD price action patterns, we have 7 straight lower price openings, we hit a bottom, and then we move up about 50 or so pips to the top of the day's range...

Honestly, it can't get much easier than this... I know a lot of traders tell me they still have no understanding or concept of using this price action pattern technique, but it's as simple as writing down the opening price and counting to 7... it's just that easy... if I could break it down and make it easier I would, but if you can write numbers and you can count to 7, you should be able to use this powerful indicator...

Does the the euro always follow this same exact pattern? Of course not, there is no such thing as always in the FX market... but we've seen this same exact pattern play out thousands and thousands of times, so the probabilities are there for sure...

Yesterday, Yeno called a live trade in the chat to short the euro at 4600 and today the trade was closed for a nice 50 pip profit:

Click on Image

Finally, I have two new posts about fulltime currency trading that you'll probably want to take a look at...

Being a fulltime trader PART I
Being a fulltime trader PART II

That's all for now, see ya in the chat

-FX Insights

Becoming a Full Time Forex Trader - Part 1

By FX Insights Moderator,

There’s a lot of things in this market that I’m not an expert on, but I do trade professionally fulltime, so based on what I know and based on my own personal experiences of trading this market 24/6, I’d like to offer a few thoughts for consideration.

Although I’ve only been trading since October of 2006, I put in about 80 hours a week watching the market, tracking the global markets, researching the market fundamentals, and trading the EUR/USD…

I have to be honest and say this – I would never recommend or push someone to trade fulltime, especially if you have a young family or you’re a homebody… this life of fulltime trading is not conducive to family life… for me, I love to go out and socialize, but I’ve had to let that go to a great degree in order to pursue my goals as a currency trader in addition to the demands of maintaining this FX community…

That being said, I would never discourage anyone from trading fulltime… if you have your heart and passions set on trading fulltime, fantastic, I support you 100% and I can promise that the FXI community will do everything in our power to help you succeed.

First, I think there’s a few questions you need to ask yourself and have solid answers for:

1. Why do I want to trade fulltime?
2. Can I emotionally handle trading in the most volatile market known to mankind?
3. Am I prepared for this pursuit to drastically change my life for better and for worse?
4. Are my family and loved ones supporting me in my endeavors?

There are probably a few more questions you should ask yourself, but I think those are the important issues to work out in your heart and mind… if you’re at peace with the decision to go fulltime, your next job is to put together a game plan for how you’re going to get started…

Do you have to quit a job? Do you have to reduce your living expenses? Do you have to payoff debt to get that off your back? You get the idea… you have to mentally and physically prepare your body for the new life you’re about to lead…

If you’re loaded down with debt, or you’re having trouble making ends meet, or you have to take a home equity loan to fund an account large enough to trade fulltime, you better think twice!

OK, now that we have all the touchy-feely stuff out of the way, lets get practical…

Risk and money management:

You might be getting tired of hearing us talk about the importance of risk and money management, but that is the #1 key to surviving and profiting in Forex. Risk management is the foundation of trading and it’s the pinnacle of trading – and everything in between!

Honestly, you could make the stupidest trades ever, you could short range bottoms and long at range tops, and as long as you’re using proper risk management techniques, you’ll likely survive the market until it turns around and goes the other way and your negative entries turn into positive ones…

Establish strict risk management rules for your trading… some of my risk management rules are:

1. Only making between 1% and 2% entries per trade
2. Keeping my usable margin above 90% at all times and in all market conditions
3. Typically not stacking my entries closer than 20 pips apart (unless market conditions dictate otherwise)
4. Not taking new entries when the market opens on Sunday
5. Not adding new entries in the afternoon on Fridays

Those are some of my personal risk and money management rules. You have to establish your own. Write them down and commit to following them in all market conditions no matter what – you must stay consistent and organized in all that you do!

There are several posts in our forums about risk and money management, so I won’t beat this horse to death, because I know you’re smart enough to grasp the concepts and importance of risk management – the key is applying this to your trading and being consistent.

Establishing your personal trading style:

Trading is not an exact science… I cannot tell you the “right” or “wrong” way to trade. But you have to establish a style and system of trading that fits your needs. The only way you’re going to establish your own personal system for trading is by experience.

Trading styles largely can be established and defined by your personality… for example, my personality is more on the adventure, explorer, risk-taker, act first and think later type level… and that’s put me in trouble before as I would over leverage and over trade my accounts… so, I can’t let that aspect of my personality interfere with my trading style and my management of risk.

But, the other sides to my personality of attention to detail, hard work, open to knew ideas and knowledge, etc. have worked to benefiting my trading style.

The other part of establishing your trading style has to do with what “indicators” you use to decide when to enter and when to exit a trade. I use the term indicator simply for lack of a better word, but the point is there has to be something you see in the market to cause you to get into a trade and then to get out of trade, whether it is for profit or loss…

Most of you know this already, but for my personal trading style, I rely on these indicators:

1. Overall market fundamentals/economics
2. Price action and price action patterns
3. Following market correlated variables such as gold, oil, equities, securities, and commodities
4. Watching real-time price action
5. Closely watching and following moves by central banks and central bankers

Those are most of the biggies. I must say that I wasn’t able to fully develop my own trading style until I completely understood how this market works and why the market moves the way it does. And that is one main area that 95% or more of all retail traders never grasp.

Sadly, most retail traders go the way of using tech indicators and nobody ever teaches them what really causes market movements and nobody teaches them the patterns of the market. That’s why we spend so much time trying to educate traders on the reality of this market and not the fallacy of using techs.

As far as my trading style goes, I’d have to say the most important thing is price action and tracking the EUR/USD 30-minute price openings. It took me 6 months to learn it, but when the light bulb finally went on, it’s changed my trading for the better and I know this technique will never fail me.

I believe price action is the best indicator for trading the EUR/USD – it’s what works for me, and it’s what makes me the most money and gives me the most success in the market. The key for you is to establish what works best for you. My benchmark for successful trading is something that gives me 9 wins out of 10.

If using techs is your key to success, wonderful, more power to you. I can’t trust something that’s lagging, but again, if you win the most using them, beautiful. I prefer predictive indicators which is why I’m also very fundamental and why I try to think like a bank trader and not a retail trader trading off of Fib lines or MACD’s or EMA’s, which have nothing to do with anything in this market.

Moving on…

Reaching expert status:

98% of my trades, if not more are EUR/USD. I have put all of my energy, my heart, and my soul into learning every single thing I can about the EUR/USD, about its fundamentals, about its patterns, about its price action, etc. I have learned all of the key fundamental reports and how they could affect the market. I’ve learned to read the body language of Ben Bernanke and Jean-Claude Trichet… I’ve learned how the banks trade the EUR/USD, I’ve spent thousands of hours starring at the EUR/USD prices flash on my trade station…

This is just my opinion, but I believe if you want to trade fulltime, you have to focus on one pair and become an expert on it. The EUR/USD offers me enough trading opportunities to make a living from. The more I’ve focused my attention on just trading that pair, the more success I’ve had in the market. I can tell you just about everything about the EUR/USD’s fundamentals, about how and why it moves, etc.

I could write a novel on it if somebody put a gun to my head and made me. I don’t want to sound arrogant, but I want to drive the point that I feel the key is becoming an expert on just one pair and sticking to it.

I probably know enough about the cable, yen, and Swiss to make money on them, and I used to trade them in addition to the euro, but I don’t do that anymore and I’m a much more profitable trader for it. I save my margin for trading the euro.

Even though I feel like I’m an expert on the EUR/USD doesn’t mean I should try to be an expert on another pair, I don’t even want to, in fact, because I think it would take away from my success trading the euro. Reason being, the market is constantly evolving and changing… market conditions are constantly changing, fundamentals are constantly changing, and market sentiment is constantly changing… so, it’s my job to stay one step ahead of the market and one step ahead of the evolution constantly happening with the EUR/USD and with the market… I haven’t learned it all, and my mind is constantly open to learning new things!

--END OF PART I--

Becoming a Full Time Forex Trader - Part 2

ROI:

I don’t care what anybody says, ROI (return on investment) is king in the FX market. It’s not about how many pips you can make in a day or in a month, it’s all about ROI, and how you trade your account to achieve that ROI…

In the world of investing, if you can beat the S&P/500, which is making about 15% ROI annually, you are pretty much a trading god. The key is how you arrive at your ROI, which goes back to risk management and not over leveraging your account.

Every once in awhile a retail broker will have a trading contest to see who can gain the most ROI in a month. Those contests are a joke and are a terrible way to teach risk management, because it causes traders to over leverage…

When it comes to ROI, I suggest setting a monthly goal for yourself… if you want to do 20% ROI per trade month, you need a game plan to safely get you there… you can even break this down to daily ROI goals. For me, I try do 1% ROI per day… some days I do more, some I don’t meet the goal, but I’m not going to go crazy on my accounts to hit that goal…

If you are going to trade fulltime to support your lifestyle you absolutely must know how much ROI you’re going to need to make on a weekly or monthly basis and then you have to trade your account in such a way to not only meet your ROI goal, but so you can safely withdraw funds from your account without putting any open trades in jeopardy of a margin call – not very easy to do!

You could have a balance of $50,000 but have 10 open entries that have sucked your usable margin down to $5,000, and a situation like that keeps you held hostage to the market… you’d not be able to remove funds because your usable margin will not allow… this is a critical factor when it comes to trading fulltime and trying to live off of your trades!

Not trading with your wallet:

There’s two ways to trade this market – either with your wallet or with risk capital. Trading with your wallet causes you to be emotional, take make dumb, emotional decisions, to over leverage your account, to over trade your account, and to take unnecessary risks. Trading with your wallet basically means trading with money you really can’t afford to lose – trading with rent money, trading with mortgage money, trading with food money, trading with your kid’s college money, etc.

Trading with your wallet is going to put so much stress on you that you’ll end up trading like an idiot and you’ll make idiotic decisions… it prevents you from seeing the market clearly and from making smart trade decisions.

In a way, trading fulltime for a living is like trading with your wallet, however, your account should be funded with risk capital… using risk capital keeps you in a much better psychological state of mind and it keeps your emotions from getting the best of you…

How much money should a fulltime trader have in their account? My opinion is a minimum of $50,000 to $75,000 to get started. It really depends on what kind of returns you need your account to give you to support your lifestyle. But I think any less than that will keep you held hostage to the market…

And please don’t get tripped up on account size… percentages are always the same… a 1% used margin entry is the same on a 5K account and a 50K account… percentages never change! 1% is 1%, no matter what…

If you have to take out a second mortgage on your home, or you have to get a title loan, or if you have to borrow cash from a credit card to fund a fulltime trading account, I can pretty much guarantee you’ll crap it out within 6 months and then you’ll be really screwed.

Continuing this point… I suggest you have set aside at least 6 to 9 months of living expenses before you go fulltime. In the event you can’t pull living expenses from your trading account, at least you have your bills covered for 6to 9 months while you get your account in shape to make withdraws. Don’t leave anything to chance!

Pick a broker:

Bottom-line – most retail brokers suck… they stop hunt, they manipulate prices, they play games, they take the opposite side of your trade, they don’t educate traders, etc. So you have two choices, go with a typical retail broker like FXCM, IBFX, Oanda, DBFX or go with an ECN like Hotspot or MB Trading or whatever…

There are advantages and disadvantages to a retail shop or an ECN, but you have to decide what works best for your needs and for your trading style. If you use stops and keep your trades exposed to stop hunting, you might do better with an ECN… if a feature like a user-friendly platform is more important, you might do better with a retail broker as opposed to an ECN.

Once you decide what type of brokerage you want to run your trades through, then you need to pick your broker. Trust me, some are worse than others… FXCM has the most user-friendly platform on God’s green earth, but of course they play typical retail broker games… an ECN like Hotspot is not known for stop hunting and they have lower pip spreads, but the platform is atrocious…

Talk to the brokerage, talk to their customer support, to their tech support and get a feel for how friendly and helpful they are… talk to other traders who use their services to see what kind of issues they might experience. Our community is a great place to do this…

Do you want to go with a U.S. broker or a Swiss broker? There are advantages and disadvantages to both… again, you have to weigh the pros and the cons, but I recommend you really take the time to figure out who will work best for your fulltime trading needs.

Suffering pain:

No trader wants to lose money, no trader wants to get margin called, but I honestly think every trader needs to feel the pain and wrath of this market… we trade in a beast of a market and no trader will ever respect this market until it beats them unmercifully… it’s pretty easy to suffer at the hands of this market, so if you’ve already been down that road, don’t make those same mistakes when you go live to fulltime trading…

Trading the spot FX market is like guerilla warfare… at any second you could be attacked… the whole market is against you… in order for another trader to win, you must be the one that looses, that’s how it works in this game… the market will use any and every opportunity to take your money, it shows no mercy, no remorse, and it’s unforgiving…

When I hear about these companies like 4xmadeeasy, it makes my blood boil because there’s nothing easy about Forex and there’s nothing you can do to make it easy… how dare those people even call it that? It blows my mind that they manage to sucker so many people, but it happens… I don’t know how they sleep at night knowing they’ve duped so many people, but I guess they don’t have souls…

Trading FX fulltime is one of the hardest ways to make money and requires the most time, energy, and focus… if you’re not willing to put in the work and the efforts it takes to trade fulltime, don’t do it… stick with your day job and do this as a hobby…

Resources:

Yes I might be biased, but I truly believe the FXI community provides everything a trader would ever need to be successful in this market… I think the principles we teach are solid and proven and tested to work… our community is helpful and kind and giving and serious about seeing traders succeed…

We are 100% committed to only providing accurate and helpful information and not filling your head with crap that doesn’t work and that would lead you down the wrong path…

Point being – fill your trading arsenal with good resources that will help you be the best trader you can be… trading FX fulltime can be so lonely, which is one reason we started FXI in the first place… take advantages of the good resources out there to help traders…

I always get asked what books a trader should read – I don’t have much to recommend… I’ve never read a book on Forex except for Forex Revolution and I never finished the whole thing, to be honest… I’ve never read a book on how to trade, I’ve never read a book on economics, and I’ve never read a book on using indicators… I can’t help you there… there are probably some good resources, though, so ask around…

If I did have to offer a recommendation, I’d probably say to read Jesse Livermore’s stuff… he’s an old school price action trader who made millions in the equities markets in the early 1900's, but lost his millions because he broke his risk management rules… Livermore’s principles are timeless, however…

Consistency:

One thing Cisco has always drilled into our heads is staying 100% consistent in all that we do… consistency is one of the keys to being a successful fulltime trader…

Once you develop your risk management rules, your trading style, your rules for trading, etc., you must stay consistent and stay consistent with your game plan…

I could go on and on about consistency, but this point is pretty cut and dry and I’m sure you understand…

Conclusion:

Those are my thoughts on trading fulltime… that’s who I see it… I’m sure there’s more that could said, but I think this covers the basics… there’s a lot here so read it a few times if you must… after reading this feel free to find me in the chat if you want to discuss any of these points further…

I hope this helps, and like I said, we’re here to support you 100% in your pursuits of being a successful FX trader…

--END OF PART II--

Casey's Daily Resource Plus - 12/02/2008

Precious Metals

Gold seems to have found a new level around which to gather itself, as it meandered either side of $920 during the New York session on Monday, before settling at $922.55/oz., up $4.35. Overnight, gold has been flat.

Unstoppable platinum had another monster day, propelled to a record close above $1900 barely two weeks after first breaching $1700, as it ended at $1934/oz., up $52. Overnight, platinum has pushed higher.

Silver spiked sharply from mid-morning through until noon, after which it backed off about 15 cents, but still closed at $17.40, up 29 cents. Overnight, silver is trending higher.

Read the rest

FX Insights Trade Team Update 11/02/2008

By FX Insights Moderator,

Well, not a whole lot of excitement in the market today, but we do have some issues to cover, starting with some Eurozone fundamentals...

This morning's economic data out of France and Italy's industrial sectors was weak, as we forecasted which certainly kept some downside pressure on the euro today...

We can identify three variables that kept the euro above the 4500 level -- commodities, equities, and the 10-year yield...

Both oil and gold were well supported today, especially oil, which is very euro supportive. The Dow and S&P/500 managed to stay in the green and close in the green, in addition, the 10-year yield cooled off from its recent highs... so, we had all of those factors which kept the EUR/USD above the 4500 level and helped today's signal to pay out, as it always does...

Fundamentally we get ZEW data tomorrow morning, which I firmly believe should disappoint to the downside and keep continued pressure on the euro... my research is not showing a high level of investor confidence in the Eurozone under present market conditions...

In addition to those market correlated variables giving us decent trade direction, it seems some of the old familiar EUR/USD price actions are finally starting to return to the market with more frequency and more reliability...

I'd like to give you a really good example of how we used price action and tracking the EUR/USD 30-minute opening prices to take a short at the top of today's range and rode it down for an easy 70 pips...

At 2:54 a.m. EST this morning we took a EUR/USD short at the price of 1.4570. The best indicator we used to determine to take the short was price action and using the 30-minute EUR/USD price openings... in addition, the time of the day what another key factor in determining to take this trade...

Lets look at the 30-minute price openings that led us to the point of taking this short:

(All times listed are EST)

11:00 p.m. -- 4527
11:30 p.m. -- 4543
12:00 a.m. -- 4538
12:30 a.m. -- 4550
1:00 a.m -- 4556
1:30 a.m. -- 4542
2:00 a.m. -- 4557
2:30 a.m. -- 4548

Now, if you were to briefly glance at that price opening pattern it wouldn't look like much, but allow me to explain how we used it to take the trade...

In addition to using the 30-minute price openings we were watching the real-time price action and observed the EUR/USD struggling to stay above the 4550 level, which was a key level...

Between 11:00 p.m. and 2:30 a.m. it didn't make an exactly perfect string of 7 higher openings, however, it never opened lower than the 11:00 p.m. price of 1.4527 but it couldn't open higher than 1.4557, so that right there was a great indicator it was likely to open lower the next several timeframes...

The other indicator was time of day... the EUR/USD was making those price action patterns and we were getting close to the European opening at the same time it was struggling to move higher, so we basically put all the pieces of the puzzle together, knowing with a fair degree of confidence that the euro would likely come down during the early European session...

Time of day indicated the euro needed to be shorted... price action indicated it needed to be shorted... it's failure to sustain a break of the 4550 level was an indicator... forecasted weak fundamental data was yet another indicator...

So really, it was a no-brainer trade... we decided to close this short at 10:44 a.m. EST at the price of 1.4499 after the euro displayed price action patterns of likely finding a bottom for the day somewhere between 4502 and 4478.

A short time after this short was closed our system triggered a signal, then we bought the euro back and closed our euro longs at 1.4525 this afternoon, again, based on the price action patterns...

Hopefully the example above sheds some more light on using price action and will help you in your quest to use it as a trade indicator...

EUR/USD Trading:

I'm still cautiously biased towards the downside for the euro until the market shows me otherwise... as we mentioned the euro has been unable to sustain a break of the key 4550 level which I believe keeps the doors open to more downside testing...

I think there's a fair probability to see downside testing in tomorrow's trading... the market appears to be setting up that way... we'll certainly be watching closely as we approach the 3:00 a.m. EST timeframe...

This morning we had another great live audio Q and A session in the chat room, so thank you for the questions and the participation.

There's a very important post about our SMS system and some solutions to make sure you receive the buy signal alerts on your email... please click here to read this important message.

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

-FX Insights

FX Insights EUR/USD Calendar 2/10 thru 2/15 (with commentary)

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

EURUSD Financials 2-10-08 thru 2-15-08.xls

Rejoining of the Unholy Matrimony

ECB may follow Fed and BoE in rate cut
By Ambrose Evans-Pritchard

The European Central Bank has ditched its bias towards interest rate rises, preparing to join the US Federal Reserve and the Bank of England in easing monetary policy to head off a sharp downturn.

Jean-Claude Trichet, the ECB's president, acknowledged that risks are now largely on the "downside" after January's precipitous fall in Italy and Spain's services index.

"It is a total capitulation," said Jacques Cailloux, eurozone economist at the Royal Bank of Scotland.

"The ECB was wrong in thinking that Europe could decouple from the US and has misjudged the loss of momentum. We think they will start cutting rates in April," he said.

Ken Wattret, an economist at BNP Paribas, said cuts could come as soon as March, warning of a "vicious spiral" as the credit squeeze and sliding confidence feed on each other.

The euro plummeted to $1.4450 against the dollar as Mr Trichet's comments flashed across traders' screens. Funds have taken massive 'short' positions, betting that the euro's six-year march to record highs is over.

Read the rest

FX Insights Trade Team Update 07/02/2008

By FX Insights Moderator

Did you enjoy today's 200 pip drop as much as you enjoyed it on Tuesday? I hope so... we surely did, these are the kinds of days we live for as traders!

So what drove the euro down today? Very simple -- his name is Jean-Claude Trichet, and right now, I'd love to shake his hand!

As expected, the ECB held interest rates at 4.00%, but it was what Mr. Trichet had to say at his press conference that caused the euro to get beat up in today's trading... lets re-cap:

Back in November we started giving warnings that European growth would slow in 2008 and that the ECB would eventually be forced to cut interest rates, hopefully those of you who were around back then and read the updates will remember... in fact, I've probably devoted a dozen or more updates over the past few weeks talking about this and now we're finally starting to see the market respond to Europe's weakening fundamentals and the market's speculations of ECB rate cuts.

At this morning's press conference, Trichet was the most dovish about European growth as I've ever seen him... in addition, he basically said that current interest rates would be just enough to stabilize European inflation... plus, he indicated European inflation would subside while downside risks to growth would grow! He almost seemed relieved to get all this off of his chest, it was very odd to watch and observe his body language, but that's an important thing we do because it can signal how the market will decide to react, which was clearly to bring the euro down...

In nutshell, Trichet told the markets the following:

*Rates are on hold and will not need to be raised = EUR-
*M3 growth is slowing = EUR-
*Inflation pressures will subside this year = EUR-
*Growth facing serious risks to the downside = EUR-
*Risks to GDP are on the downside = EUR-
*ECB will not surprise markets = EUR-

Basically, Trichet gave the market six major, mega, no-brainer reasons to short the living crap out of the EUR/USD and to likely keep shorting it in the near-term...

With Trichet giving the market the greenlight to unload euros today, his comments triggered a chain reaction of profit taking, loss taking, and shorting of the EUR/USD, which took us down another 200 pips from yesterday's topside resistence at 1.4638... and as far as today's down move goes, the EUR/USD held to its very reliable pattern of not making a move (up or down) of more than 200-220 pips during a trade day. It moved exactly 201 pips from the top of the range at 1.4638.

As we indicated, sustained break of 1.4550 would open the doors to the downside and we certainly saw this play out in today's market action...

So now we have the EUR/USD making two 200-pip moves down so far this week... if patterns hold true, we'll likely see a retracement back up as the market is slightly overextended and exaggered itself this week... that being said, we have seen EUR/USD patterns where it'll move 500 points in a week, but this is very rare and I'm not expecting this to play out before we see a bit of retracement...

EUR/USD trading...

As we indicated, the break below 4740 took away the market's momentum to push the euro up any higher and now the break below 4550 has opened the doors to test lows we haven't seen for weeks and months.

For most of last year the market punished the dollar for its weak fundamentals and then for the Fed rate cuts... the dollar has recieved the worst of its punishment in the near-term...

The market has yet to fully begin punishing the euro for it's weakening fundamentals because the Eurozone's fundamentals have just barely started to show signs of decline and weakness, which means we have a potentially long road ahead of us... then, the market will need to punish the euro for the ECB rate cuts that are likely coming this spring or sometime early in the second half of this year...

By that time, we'll be in a full-blown U.S. recession, and the global markets as a whole will be crumbling all around us... we've already talked about what a recession will do to gold and the dollar, so I'm not going to take time to get into that now, you can read those posts...

As far as trading goes, I'll be shorting the rises, as indicated in yesterday's update and in the chat today... the only time I'll likely take a euro long is when we trigger a signal... on an intraday trade basis, I will likely be short when I trade within a range...

I would love to tell you where the market will decide to find a bottom or find the next top, but please understand that the landscape is in the beginning stages of shifting...

The dollar's been beaten up left and right, up and down all last year... the market already knows the fundamentals are crap, that interest rates are abysmal, that the jobs market is fickle, and that growth is slowing to recessionary paces -- there are no more big secrets to reveal about the sad state of affairs with the U.S. economy...

For Europe, on the other hand, the secrets are just now coming out and the market has just begun licking its chops to do to the euro what it did to the dollar... at least this is how I see things playing out... I could be dead-wrong, but I'm going to stick with this same forecasting we've had since last November and I'll have to trade it accordingly and consistently...

Lets look at some key levels to keep an eye on:

Downside:

4429
4401
4384
4364

Upside:

4495
4512
4538
4554

For me, the plan is simple, short the rises unless price action dictates otherwise...

Early this morning Yeno gave those in our chat a killer EUR/USD short on a live trade call:

Click on Image

And I just have to give a big congrats to one of our community members who goes by the screename CK33 -- this smart and patient trader took the live trade call, shorted at 4636 and held his short all the way to 4445, picking a perfect bottom to close out and bank 191 pips... we love hearing those success stories!

Fundamentally tomorrow, we only have one noticeable piece of data which is German Industrial Production, which very likely could disappoint this go around...

As far as the market goes, I don't expect another 200 pip move tomorrow, but I'm ready for continued volatility should the market decide to stay active...

Currently, we are in a signal which will close out at 1.4513 should we stay above our last buy level of 1.4420... so far, we've held above this level... I feel confident this signal will payout just as all the others have... if this signal is making you squirm, find me in the chat so we can discuss it

I think that's all for now... see ya in the chat...

-FX Insights

FX Insights Trade Team Update 06/02/2008

By FX Insights Moderator

Another boring day in the market with little volatility to speak of. We do, however, have some important things to cover in today's update... a few different topics we need to talk about...

I'd first like to talk about the signal that was triggered this morning and why we had to "cancel" it... very early this morning we triggered a buy signal and decided to make our first buy level at 4600. The signal triggered exactly at the price of 4608. Based on the time of day and based on market conditions, we felt as if the market would come down to at least the 4600 level and determined this to be a good place to take our first entry.

The market, unfortunetly had some other ideas and decided not to come down, but to take off from the exact point where we triggered the signal. When the market reached 4635, we decided to "cancel" the signal because our first buy level was never reached. This is only the second time in the history of our signal that we had to cancel it for this reason.

Why do we cancel a signal if the market takes off before our first buy level is touched? It's all in the name of risk managment... you see, we knew the market would go up at least 20 pips from the place where the signal was triggered, however, we also knew that if it first went up only to come back down, it may continue down and or stay down today. So, in managing risk, we simply let the market do its thing... the market did go up to 4672 today, so even if you bought in at the trigger price of 4608 when you got your SMS, you still would have made some great profits even though we had to cancel out the signal.

I just wanted to clarify why we did this in case there was any confusion. I don't want anyone to think we are playing games or manipulating things, but rather this is something we had to do to ensure proper risk management during these odd market conditions. If you have any more questions about this, please let us know. Thanks.

Now, let take a look at the market...

As we talked about this week, I see continued aversion to risk happening in the market, which I believe is a big contributing factor in why the euro is under the gun against the dollar... so, lets break this down:

Equities -- overnight the Nikkei closed down over 600 points, signaling continued fear of risk in Asia. Today, the Dow closed down 65 points, closing at 12,200 on the dot. Now I'm hardly an expert on the Dow, but I have to believe that a break below the 12,000 level would put renewed selling pressure on the Dow and Dow futures. For the euro, these declines in the equity markets will only get it pressured against the dollar, and will keep the EUR/USD at the bottom of the range.

Recession -- After yesterday's abysmal ISM services data, once again the markets were talking recesion... not just the U.S. recession, but a global recession. These recession fears are real, not unfounded. Fundamentals point to true recession happening. The problem with this recession issue as it relates to the euro and the dollar is where things get a little weird and tricky.

I'm still firmly believing that a full-blown U.S. recession will negatively impact growth in Europe and will negatively impact the value of the euro and will negatively impact demand for the euro. Logic would tell you that a U.S. recession should keep the dollar under the gun and keep it weak against higher yielders like the euro, but almost by the day I'm more convinced the dollar is somehow going to come out smelling like a rose as the year rolls on.

And here's where I start thinking like a bank would think -- if the U.S. causes a global slowdown which would directly effect European growth, are the banks going to be as over-the-top bullish on the euro as they were in 2007? No way. Much of the euro's strength is built upon strong growth fundamentals, a very hawkish central bank, a central bank that so far has been very tight on monetary policy and hawkish with rates.

At the same time, the euro rose to stardom the past few years on the back of the U.S.'s weakening fundamentals and the fore-knowlege from the banks that the Fed would eventually have to slash rates. In addition, the EUR/USD was bolstered by rising gold, rising oil, lower bond yields, and skyrocketing equities markets.

But in today's market landscape, we need to paint a different picture... many of those factors that have compelled the banks to keep buying the euro and to keep pushing it higher against the dollar are turning the other direction...

We've said it a million times, but growth in Europe is slowing and will keep slowing -- the European fundamentals will be weak this year overall. The ECB while remaining hawkish on price stability, will have to cut rates later this year because Trichet eventually will have to address Europe's growth issues and the only way central banks deal with slow growth is to cut rates.

If we do fall into recession, commodities should level off or decrease in value. Equities may have a tough time this year. And if the markets decide to go heavily into risk aversion mode, this usually means they flock to so-called save havens like U.S. securities, and believe it or not, the USD.

I hope you don't think we're beating a dead horse here, but I just want to explain why our concerns about the euro are mounting as the year rolls along. I want to state our case clearly... and give you some food for thought.

EUR/USD trading...

With the EUR/USD meandering in the low 4600's, this pair is in what I consider to be a very precarious spot... with the euro falling under the 4740 level, this leaves the door wide open for more downside testing... staying below that level removes much upside momentum and potential. That being said, staying above the 4550 level also leaves some room for buyers to emerge to push the pair back up towards the top of the range... so, this is why I say we're in a weird spot at the moment.

As far as trading goes, there's no clear direction to trade with any fair degree of certainty unless we can sustain a break above 4740 or sustain a break below 4550... based on current market conditions and what's happening with the global indicies, I can't really be biased one way or the other -- my personal risk management rules will not allow me to go heavy long or short at the moment... this means I'm tightening up my accounts, not trying to catch a big move, but playing the intraday, taking a few pips per trade and getting out. They key is that I do not want to get caught going the wrong way should the market decide to go nuts and make another 200+ pip move...

Playing the intraday for me has meant shorting the rises... I've felt more comfortable shorting the rises the past 48 hours, and this bias is based on what I see with price action, what I see with gold, oil, the Dow, and the 10-year... speaking of the 10-year, yields have made a strong comeback in recent days which has put even further downside pressure on the EUR/USD.

Tomorrow...

Tomorrow is the big day -- ECB interest rate policy at 0745 EST, followed by Trichet's press conference at 0830 EST. Trichet will hold rates at 4.00%. With Eurozone inflation running at 3.2%, there's really no way he can cut rates while remaining so vigilent on price stability. Of course, the market will be watching closely to what he says about the near-term future...

The past two press conferences Trichet has been somewhat dovish on growth. He's not made a single reference to possible rate cuts, in fact, he's said a rate cut option was not on the table.

Now there's no way I can predict what the man will say tomorrow, but I'm warning you now, if he ups the rhetoric on Europe's slowing growth, and if he says Eurozone inflation will subside later this year, the euro will stay under pressure. In addition, if he says all of those things and even slightly hints at possible ECB rate cuts happening this year, I fully expect the market to hammer the euro.

I will be tightening things up as we draw close to the rate decision and following press conference. As Yeno says, expect the unexpected...

I don't believe we'll see any mega moves before tomorrow morning as the market should fall into a wait-and-see mode. Should we dip below the 4600 level, some buyers may emerge to push the euro back up, so keep that in mind over the next 12 hours or so...

You'd be well served watching Trichet's press conference tomorrow. You can view it here.

-FX Insights

Shadow of European Slowdown Looming

LONDON (MarketWatch) - Central bankers meet Thursday in London and Frankfurt, shadowed by growing evidence that U.S. economic woes are threatening prospects for growth in the United Kingdom and in the 15 European nations that make up the euro currency.

While recession fears have seen the Federal Reserve downplay inflation worries to slash interest rates, the Bank of England has eased at a cautious pace and the European Central Bank has held its fire.

In recent weeks, Bank of England Governor Mervyn King has signaled that slowdown worries slightly outweigh inflation concerns, analysts say, while ECB President Jean-Claude Trichet has remained steadfast in emphasizing price stability as the all-encompassing concern of continental monetary policymakers.

Markets now widely expect the Bank of England to trim its key lending rate by a quarter point to 5.25% Thursday, while the ECB is still expected to hold its key rate steady at 4%.

Read the rest

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

The ECB Rate Rebels

By Nico Isaac

On January 28, the annual International Monetary Fund meeting was held in Davos, Switzerland. There, the world’s economic leaders came together to address the central concerns facing the global marketplace.

Result: the European Central Bank was put under more fire than a spit-roasting pig.

The short version is that the ECB has opted not to join the U.S. Federal Reserve’s rate-cutting crusade; instead, holding rates firmly to a six-year high of 4% since June 2007. Lofty rates, so say the "experts," keep the euro at record-high levels, which further compounds the setbacks currently facing Eurozone economic growth.

Read the Rest

FXI EUR/USD Calendar 2/3 thru 2/8 2008 (with commentary)

By FX Insights Moderator,

Before we dig into this week's fundamentals and market outlook, I want to talk about last Friday's NFP...

As we indicated in Friday's update, last month's NFP data was revised up, the unemployment rate, however, was knocked back below 5.0%, which was opposite of my forecast... with new and continuing jobless claims and vastly diminished new hiring, it's very difficult to understand why the unemployment rate dropped to 4.9%...

We also indicated, we'd see downward pressure on the EUR/USD, which certainly played out Friday, but to a slightly greater degree than I had anticipated... as we stated in the update, though, I still believe the EUR/USD has the potential to re-test the top of the range...

NFP showed a net loss of 17K jobs, which is certainly dismal, but lets keep one fact in mind -- of all the months in the year, January typically shows the biggest decline in new jobs and this is because of the BLS's birth/death model... so, I'm sure we can expect another upward revision next month...

Friday was a great example of why most NFP's are not 100% cut and dry like many traders expect it to be... and although the EUR/USD made an initial push towards all-time highs, in the chat we strongly cautioned against taking any longs on Friday and to simply let the market play out as it wished...

Moving on...

Fundamentally, we have an interesting week ahead of us... not quite as challenging as previous weeks, but there are some key events we need to focus on.

Monday -- The only real key data piece is U.S. factory orders. We'll also get a speech by the Fed's Kroszner... although data is light on Monday, don't necessarily expect the market to be quiet... Monday holds the potential to give us some decent moves and volatility...

Tuesday -- We get some key Eurozone inflation data with German and E-zone PMI and Italian CPI... we may see a bit of contraction in those PMI numbers... another key piece of data is E-zone retail sales. Forecasts show a decent rise from the previous decline... I'm not quite as confident on hot retail numbers. Should we see a downside surprise in retail, this will certainly put some pressure on the EUR and renew talk of possible ECB rate cuts...

Key U.S. data on Tuesday is ISM Non Manufacturing... I believe the market will pay close attention to this release as it will give us a current look at what's happening within the service sector. The service sector is one that has remained resilient while other sectors have stumbled the past 6 months... I don't expect a downside surprise with this data, however, should we see anything below 51, the market could certainly react very negatively against the USD...

Wednesday -- Nothing but USD data today... we start out with Non Farm Productivity... I normally wouldn't pay a whole of attention to this particular piece of data, but I think the market and the Fed will be watching, so I'll be watching too... basically, NFP Productivity is a combo growth-related and inflation-related report, but there's a few weird aspects to this report... in a nutshell, basically the FX market wants to see lower NFP Productivity because that correlates into higher wages being paid for less output, which is inflationary, and inflation is good for a currency as it could lead to rate hikes or less rate cuts... make sense?

OK, we also get three Fed speeches -- Lacker, Kroszner, and Plosser... of course, the market will be looking for any clues on future monetary policy, specifically what the Fed's next move on rates will be in March.

Thursday -- Our biggest fundamental day of the week... early in the morning we get key German factory orders data which I believe will be weak... however, our biggest events of the day is the ECB's decision on interest rates followed by Trichet's press conference...

I absolutely, positively, cannot see the ECB cutting rates on Thursday... I do not believe this option is on the table. In fact, there's a higher probability of the ECB raising rates than there is of them cutting rates... I firmly believe Trichet will keep rates on hold at 4.00%... the biggest factor is that CPI rose from 3.1% to 3.2% which is keeping intense inflation pressure on the Eurozone and is keeping inflation well above the ECB's target rate of 2%.

We also get key Initial Claims data on Thursday... last week jobless claims rose to a staggering 375K... we could certainly see that number revised down this week, which would be USD supportive... keep an eye on this week's headline number... if it stays above 340K and we don't get a downward revision to last week's data, the USD could face renewed sell-offs...

At 10:00 we get Pending Home Sales which the market is expecting to "not be as bad as last month." I'm not really buying it... we've not seen the bottom yet, banks are not lending, consumers aren't qualifying for mortgages, there's a 9-month backlog in home inventories, prices paid are way down... it's still a disasterous mess, so I don't expect any mega upside surprises here...

Friday -- Two key pieces of data out of Germany: German Trade Balance and German Industrial Production... trade balance should back down from last month's number as the euro has remained very strong and global economies are starting to slow... as far as industrial production, I'm not very bullish on this one either...

As far as the Fed goes, we get a speech from Yellen very early in the morning, followed by Lockhart and Pianalto speaking later in the afternoon... don't expect anything groundbreaking from that braintrust...

EUR/USD:

If the market wants to keep correcting down, to me, this is not a sign of the dollar gaining strength... nobody is buying dollars at this point... those corrections we've seen and could see are attributed to profit-taking, loss-taking, fluctuations with gold, oil, and equities... basically all the market correlated variables...

There was very little liquidity in the market on Friday, which also puts downward pressure on the EUR/USD... as far as trading goes, I'm still euro long -- cautiously long, of course... and I will likely look at any further downside correcting as another buying opportunity...

In case you missed it, I did a post on the gold-EUR/USD correlation... please take a moment to check it out as gold is one of the most important market correlated variable... As always, take care to manage your risk and money very closely... do not overleverage your account under these current market conditions of uncertainty and risk aversion...

Lastly, I'll do a live audio Q & A in the chat tomorrow at 1100 EST...

-FX Insights

EURUSD Financials 2-3-08 thru 2-8-08.xls

Gold, the Euro and the US Dollar

By FX Insights Moderator,

If you’ve spent even just a brief amount of time at FX Insights, surely you’ve noticed how close we watch and track the EUR/USD’s market correlated variables… and just to give the term a proper definition, my definition of what a market correlated variable is:

"A non-Forex factor that has direct connection to the EUR/USD and to the EUR/USD’s price fluctuations."

To put it another way, market correlated variables are factors happening outside of the Forex world, yet have major direct impact on whether the EUR/USD goes up, goes down, and to what degree these moves may occur.

Trading: Primarily, gold is traded on the NYMEX. For gold, there is a spot market, a futures market, and an options market. Gold is traded by everyone from the small potatoes retail investor all the way up the ladder to large banks, hedge funds, institutions, and further on up to the central banks of the world.

Major reasons why gold is purchased: Gold is purchased as a hedge against inflation. Gold is also purchased in “response” to a weakening currency, which in the case of the EUR/USD, gold is and would be purchased as the value of the dollar falls against the euro. Gold can be bought and gold can be shorted, just like a currency can in the spot FX market.

Gold and central banks: Although both the dollar and the euro are fiat currencies, the Fed and ECB have vast gold holdings within their reserves. One way the Fed and ECB control and manipulate the value of their respective currencies is by trading their vast gold reserves. The ECB is especially notorious for dumping many tonnes of their gold on the market at certain times of the year to “cool down” the value of the euro against the dollar. Gold is a powerful market manipulation tool at the hands of the central banks, and the market usually only learns of a central bank’s gold operations after the fact…

Key gold facts: The main reason why the commodity of gold is highly correlated to the EUR/USD is because gold is denominated in U.S. dollars. Gold and the USD share an inverse correlation… think of it this way, when gold is purchased, the USD is sold… the selling of any currency will naturally devalue that currency, so as gold is purchased and the price of gold rises, the value and “price” of the USD must fall because of the inverse correlation that exists between gold and dollar.

It’s my understanding that in 2001 gold began making a very strong resurgence which has ultimately led to this commodity making all-time highs in the $940’s…

This past week the USD/CHF went to post-World War II lows while gold was making all-time highs. Going back to 2001, look at the EUR’s climb to dominance over the USD… looking at the big picture, the EUR/USD has moved up in tandem with gold, while the USD Index has moved against gold and the EUR/USD…

Other key facts about gold and the USD: As we mentioned earlier, gold is denominated in U.S. dollars. So lets think about it… if the dollar is strong, you could buy more gold, literally getting more bang for your buck… a weak dollar buys less gold… here we have yet another reason why the weak dollar will only keep upward momentum going for gold – as long as the USD stays weak, the market stays bearish on the USD, gold naturally has to stay strong and has to rise, which then naturally correlates into the EUR staying bullish against the USD.

Gold and inflation: Back in the late 1970’s and early 1980’s U.S. inflation was absolutely out of control, and this runaway inflation issue took gold up to almost the $900 level, which must have been a staggering price back in those days… the Fed had to raise interest rates several hundred basis points very rapidly to slow inflation and this eventual mega rise in interest rates caused gold to loose half of it’s value and by 1983 gold was in the $400’s.

So as you can see, inflation is another key factor in the value of gold… when inflation rises, gold rises, but when a central bank steps in with interest-rate-raising tactics to slow inflation, gold will fall in value accordingly… and following this natural progression… higher rates = less inflation = weaker gold. Higher rates = a stronger dollar and a stronger dollar = weaker gold…

In many ways inflation is reflected in the price of gold which is then reflected in the price of the EUR/USD as more times than not gold leads the EUR/USD…

Practical exercise: I’d like to pause and take you through a practical exercise… this is how I think things through and how I attempt to forecast the market and formulate a predictive view of the EUR/USD… this is the kind of stuff that goes on in my head, so I’m going to do my best to communicate it as simply and clearly as possible…

First, I always start with interest rates… interest rates, as you’ve heard me say a katrillion times are paramount in the spot FX market…

For now I see the Fed in a rate cut cycle and the ECB in a rate hold cycle, at least through the spring of this year… I think the Fed can cut rates another 50bps or more before it’s all said and done. So going forward starting with interest rate cuts, here’s how I think it through:

1. Fed rates stay at 3.00% and possibly get cut further

2. Low rates and rate cuts weaken and devalue the USD

3. The weak USD correlates into higher gold prices

4. Higher gold prices correlate into the EUR/USD continuing to make bullish gains

5. Rate cuts and weak USD lead to rising U.S. inflation

6. Rising inflation leads to buying of gold, driving gold prices higher, driving EUR/USD higher

7. Rising inflation causes the consumer to slow spending, which further weakens the USD

So, that’s my logical way of thinking through what’s happening within the market under current conditions. The Fed seems reluctant to combat inflation and hell-bent on trying to stimulate growth and appease global markets with heavy rate cuts, so I believe this will naturally lead to more gold gains which should keep the euro supported against the dollar, at least until the Eurozone fundamentals really start turning south and the ECB begins following the Fed with rate cuts of their own, at which time we should see some rapid declines in the value of the EUR vs. the USD.

Gold and recessions: Currently, the hot debate is whether or not the U.S. is in a full-blown recession, the start of a recession, or a few negative GDP reports away from a recession… I’m not a college-degreed economist, so I can’t give you the textbook answer… personally, I look at two key things to help me determine a U.S. recession situation, and those two factors are gold and the employment situation (which then trickles down to the death of the consumer).

The rapid rise in gold prices and the rapid decline in new job creations, the loss of construction and manufacturing jobs, the rise in new and continuing jobless claims and the almost 100bps rise in the unemployment rate signal a real recession… and I think these signals were obvious many months ago when gold really started taking off…

But here’s where it gets a little weird with gold and recessions – believe it or not, history has shown us that when the U.S. is in a full-blown, established, and recognized recession, the price of gold has stabilized and or declined! So this means if all the world’s economists put their heads together and officially declare that the U.S. is in a recession, we could see the price of gold level off or drop, which could push the value of the USD up against the EUR…doesn’t make much sense that the USD could strengthen during a recession, but it’s certainly possible…

Gold and trading the EUR/USD: Here’s where we get practical when it comes to using gold as an indicator to trade the EUR/USD…

Quite simply, I am watching the spot gold market just as much as I’m watching the EUR/USD price action… moves in the price of gold more often than not will lead moves in the EUR/USD… gold is a tremendous leading indicator… if I’m trading the market intraday, I’m watching every little uptick and downtick with gold… I watch the NY spot gold market like a hawk…

If you’re one of our many tech traders trying to wean off the techs and learn how the EUR/USD really moves and why it really moves, you’d be well served watching the spot gold market as a key indicator… do yourself a favor and compare a 1-week gold chart to a 1-week EUR/USD chart, pick any week really, and you’ll see what I’m talking about…

There’s really no way I can glamorize the gold-EUR/USD correlation… it’s fairly simple and fairly cut and dry… it’s not a magic bullet indicator, and as I always say, there’s no such thing as “always” in the FX market, but gold is a highly probable and fairly consistent market correlated variable.

If you don’t track it or use it as a trading indicator, I encourage you to begin doing so… it’s only going to enhance your trading and give you more wins vs. losses as it will paint a clearer picture of market direction.

When the spot gold market is volatile you can expect the EUR/USD to be volatile… when gold decides to find its next top and correct, you can likely expect the EUR/USD to correct with it… the overall euro fundamentals do not warrant the value of the EUR/USD to be north of 1.4200, however, because of market correlated variables like gold being on such a bullish run, the euro naturally has to come up with it…

Again, of all the market correlated variables like oil, bonds, and equities, I believe the tightest overall correlation exists between gold and the EUR/USD.

Lastly, based on past experiences, I know there’s somebody or several somebodies out there who’ve read this and are thinking, “So if gold goes up, what does the EUR/USD do?” If you’re not sure, find me in the chat and ask, I can always use the amusement…

-FX Insights