Whenever possible, I try to identify scenarios and how I might trade in them. After Trichet's press conference, I wrote that he had pushed the Euro rally to the edge of the cliff by lowering the estimates for inflation in 2007, all that was needed to go over that cliff was another push and that the NFP might be the force to do just that. Well, that scenario has come about. The strong reading on the NFP, coupled with the Septemebr and October revisions that added an additional 42K jobs to the period (making the 3 month average about 135K/month), was enough to push the Euro over the edge that Trichet pushed it to.
As of now, the two things that were on the table driving the Euro higher was the likelyhood of an early 2007 ECB rate increase coupled with a March Fed rate cut. Those options are presently off the table.
The only question in my mind is the steepness of the descent. A straight vertical drop or a more gently sloped fall. My opinion? Steep and fast. Why? The desire of traders to maximise end of the year profits. But you know what? Steep or gentle it doesn't really matter, because one way or another, the Euro will fall as long as the present fundamentals hold. Have a look at the hourly charts to see how it might go:
On the way up, there was some conjestion around 3250, then around 3210, then again around 3080. Below that, it conjested around 2950.
Any longer term trend depends on continued fundamentals, or the lack of new, different fundamentals, to drive it thru technical areas of support and resistance. So the fundamentals i've outlined above have to remain in order for the trend to continue.
Will they? Nothing's on the calender for the Eurozone or US for Monday. I would look at the open on Sunday to see where things are. I think the Euro will finish Monday lower then where it opens on Sunday. Tuesday there's German ZEW and US Trade balance, followed by the Fed statement. A nice safe trade is to exit your position before those announcements. I don't think they'll do all that much besides cause some erratic movement because traders will be waiting for the Fed statement. So take some profit before those announcements and let the Fed statement get released. We'll check the statement and market reaction, then go from there.
As of now, the two things that were on the table driving the Euro higher was the likelyhood of an early 2007 ECB rate increase coupled with a March Fed rate cut. Those options are presently off the table.
The only question in my mind is the steepness of the descent. A straight vertical drop or a more gently sloped fall. My opinion? Steep and fast. Why? The desire of traders to maximise end of the year profits. But you know what? Steep or gentle it doesn't really matter, because one way or another, the Euro will fall as long as the present fundamentals hold. Have a look at the hourly charts to see how it might go:
On the way up, there was some conjestion around 3250, then around 3210, then again around 3080. Below that, it conjested around 2950.
Any longer term trend depends on continued fundamentals, or the lack of new, different fundamentals, to drive it thru technical areas of support and resistance. So the fundamentals i've outlined above have to remain in order for the trend to continue.
Will they? Nothing's on the calender for the Eurozone or US for Monday. I would look at the open on Sunday to see where things are. I think the Euro will finish Monday lower then where it opens on Sunday. Tuesday there's German ZEW and US Trade balance, followed by the Fed statement. A nice safe trade is to exit your position before those announcements. I don't think they'll do all that much besides cause some erratic movement because traders will be waiting for the Fed statement. So take some profit before those announcements and let the Fed statement get released. We'll check the statement and market reaction, then go from there.
