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Fundamentally-The Euro Rally is Dead:

  • #21
  • Dec 10, 2006 8:15pm Dec 10, 2006 8:15pm
Everyone knew he was going to raise rates and the statement was quite hawkish but no more so than expected so after it went up briefly it came back down. The smart players could see the uptrend was over and just wanted to close their long positions.
  • #22
  • Dec 10, 2006 8:19pm Dec 10, 2006 8:19pm
Quoting notouch
Everyone knew he was going to raise rates and the statement was quite hawkish but no more so than expected so after it went up briefly it came back down. The smart players could see the uptrend was over and just wanted to close their long positions.
So raising rates is good for the economy but it breifly went up, but came back down so that picture in itself is clear that the uptrend is over, am I correct?
  • #23
  • Dec 10, 2006 8:23pm Dec 10, 2006 8:23pm
Raising rates is certainly not good for the economy but it is good for the currency. The rate hike was already priced in so didn't move the market at all. What did move the market was the Trichet press conference. The market was also waiting for the NFP and was long Euros so there was always going to be a sell off regardless of what Trichet said.
  • #24
  • Dec 10, 2006 8:29pm Dec 10, 2006 8:29pm
Quoting notouch
Raising rates is certainly not good for the economy but it is good for the currency. The rate hike was already priced in so didn't move the market at all. What did move the market was the Trichet press conference. The market was also waiting for the NFP and was long Euros so there was always going to be a sell off regardless of what Trichet said.
so in your opinion, what triggered the sell off that was long awaited for? What particular comment from Trichet?
  • #25
  • Dec 10, 2006 8:35pm Dec 10, 2006 8:35pm
The big sell off didn't come until the next day after the NFP data. I think it was a technical sell off more than anything but perhaps triggered by slightly less hawkish than expected comments and better than expected NFP data.

One thing I did notice in the Trichet speech that did cause the sell off was when he said the phrase "continue to monitor very closely all price developments" didn't necessarily mean a rate hike in 2 month's time. As soon as he said that the Euro started falling.
  • #26
  • Dec 10, 2006 9:32pm Dec 10, 2006 9:32pm
Quoting notouch
You have to pay attention to Trichet's words over the past year. Whenever he uses the phrase "continue to monitor very closesly all price developments" it means interest rates rise in 2 months time. "Vigilance" of course means interest rates will rise next month.

Just about every technical indicator is screaming sell e.g. RSI has broken below 70 on the daily chart.
I don't think the ECB ever lowered their inflation forcast before last week. That's huge. When the 2nd or 3rd most important central bank lowers it's inflation forcast-the market is gonna hear that and react to it. The bottom line is that 2 things came off the table in the near term: A March Fed cut and a January ECB increase.

Of course, everything is still data-dependent and the data can change quickly. Oil has to stay in the $60 range. A lot of things have to be continuously lined up to see the Euro back where it was and there's no garuntee they will. To put it in CB speak: The CB's are data dependent and so's this trade.
  • #27
  • Dec 10, 2006 9:36pm Dec 10, 2006 9:36pm
Quoting Trader1580
i was just about to say...strong down trend here...

by the way, when Trichet gave the conference, why is everyone selling the EUR when he just raised rates?
Becasue the increased was already priced into the market. Trichet's conference was not hawkish at all. If it was, the Euro would have continued to rise. Remember it was only last week that everyone was talking about a 1.4 Euro.
  • #28
  • Dec 10, 2006 10:00pm Dec 10, 2006 10:00pm
Quoting Trader1580
with the recent data, can you explain the statement "worried about the risk of upside inflation"? with numbers that are bad as it is, what upside inflation is there?
The numbers are overblown. You have to take a look at it from a different perspective. The dollar is the base currency of the world. Anything even remotely negative will create a selling pressure. Now we all know that the US is more of a service dominated economy. With that in mind here are the following #'s to promote my theory.

Non Farm Payroll average 125K over the past three months
ISM for the month of October was 58.9 - biggie because the US is a service economy
Unemployment low 4.5%
GDP actually increased 2.2%
All other numbers show moderate growth

The PCE deflator also shows 2.5-2.7% higher than what the fed sees as the comfort zone of 1-2%

Looking back for the past two weeks since the dollars fall, the only real biggie that seemes create doubt about the us economy would be the Manufacturing # ....if the US was a manufucturing economy. Its not. Thats why this whole thing is overblown...way overblown....and something that is overblown tends to correct pretty fast, and pretty hard.

Plus, if the words of the most powerful person in the US economy has no sway on the dollar, while everybody concentrates on every single syllabul of Trichet, you know something is wrong. The market needs an unexpected slap in the face.

Just my 2 cents.
  • #29
  • Dec 10, 2006 10:13pm Dec 10, 2006 10:13pm
Trader 1580-with the recent data, can you explain the statement "worried about the risk of upside inflation"? with numbers that are bad as it is, what upside inflation is there?
Here's the Fed statement from the last 3 meetings:

"Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand".

The dollar weakened after the last time this statement was released on 10/25.

This is like saying "Readings on the amount of cars traveling thru this street remain elevated, however, the amount of cars seems likely to moderate over time and I expect to be able to cross this street safely because of the restrctions I have previously placed on traffic flow and other factors restraining traffic".
  • #30
  • Dec 11, 2006 7:17am Dec 11, 2006 7:17am
Quoting NewstraderFX
Trader 1580-with the recent data, can you explain the statement "worried about the risk of upside inflation"? with numbers that are bad as it is, what upside inflation is there?
Here's the Fed statement from the last 3 meetings:

"Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand".

The dollar weakened after the last time this statement was released on 10/25.

This is like saying "Readings on the amount of cars traveling thru this street remain elevated, however, the amount of cars seems likely to moderate over time and I expect to be able to cross this street safely because of the restrctions I have previously placed on traffic flow and other factors restraining traffic".

good analogy, if the cars obey the traffic restrictions he has placed, he will be just fine (no change), if the cars are way overflown than what he expected (data from above post), then he may have to impose further restrictions. In this case, from the numbers above and a very key point that the U.S. is a service economy. Fed may actually raise rates tomorrow. The recent data and the price of currency is way undervalued...
  • #31
  • Edited 8:41am Dec 11, 2006 8:06am | Edited 8:41am
russians shift foucs to euro leaving dollar behind.
http://www.ft.com/cms/s/277471c2-888...0779e2340.html

would probably explain the dumping of USD despite the fact that economic reports are not as bad...
  • #32
  • Dec 11, 2006 8:20am Dec 11, 2006 8:20am
Interestingly 4 times out of 6 the Euro has fallen on the day interest rates have gone up. I think a February hike was expected by the market but what Trichet said about inflation shows that that might be the last for quite a while.
  • #33
  • Dec 11, 2006 8:22am Dec 11, 2006 8:22am
Does anyone at all remember 2001 when the Fed were harping on about 'elevated risks of inflation' - even though the market was selling the dollar and wondering who to believe? Right up until they cut rates they were droning on about inflation much to my amusement. They then cuts rates in what was the start of about 17 or so such cuts. just think its timely to remember that what the FED says isn't necessarily what the FED does.
  • #34
  • Dec 11, 2006 8:28am Dec 11, 2006 8:28am
Quoting notouch
Interestingly 4 times out of 6 the Euro has fallen on the day interest rates have gone up. I think a February hike was expected by the market but what Trichet said about inflation shows that that might be the last for quite a while.
maybe everyone was so well aware that the price was already factored in the currency price that unless there's a big surprise, it will be dumping the EUR after the rate was raised. It's contrary because you'd think increasing rates means currency increase.

Heard in the conference the magic word "continue to monitor VERY closely all price developments" which means that rate hike in Feb. but then in the conference, a reporter specifically questioned that phrase and he commented that what he said is what he said and not sure, but I also read somewhere here that he also commented that what he sas does not necessarily mean what he'll do and that's when the sell off began.
  • #35
  • Dec 11, 2006 11:00am Dec 11, 2006 11:00am
Quoting Money Talks
just think its timely to remember that what the FED says isn't necessarily what the FED does.
the oposite from mr. Trichet
its just money
  • #36
  • Dec 11, 2006 11:17am Dec 11, 2006 11:17am
I do not agree EURO rally is dead. That just a short term correction. I believe USD is facing a great devaluation crisis.
  • #37
  • Dec 11, 2006 1:08pm Dec 11, 2006 1:08pm
Quoting fxfei
I do not agree EURO rally is dead. That just a short term correction. I believe USD is facing a great devaluation crisis.
may be quite the opposite from recent economic data. The U.S. economy is experiencing slow growth...which is different from no growth or recession. There was an article from financial times released just yesterday saying although the dollar chart looks weak, it is because the OPEC nations and russia has been replacing dollar currencies with euros.
  • #38
  • Dec 11, 2006 3:25pm Dec 11, 2006 3:25pm
So guys where do you think the pair is heading tonight? EUR/USD and GBP/USD? Think its gonna trade sideways until the FOMC minutes comes out or will the continue rally we saw today from Greenspan's comments continue...? Are you in any trades right now?
  • #39
  • Dec 11, 2006 3:56pm Dec 11, 2006 3:56pm
Greenie the Dollar Meanie:

Who said Forex was easy? As u know, I called for an end tothe Euro rally and I said it would continue as long as the fundamentals held. So we got an unsheduled fundamental release.

http://www.bloomberg.com/apps/news?p...d0M&refer=home

OK, Greenie says the current account is important. No doubt he's right and as it happens, we have the number coming out tomorrow. How might it go?

Well, as a currency devalues the cost of it's imports go up, which usually dampens demand leading to a shrinking of the trade deficit. There's a good chance tomorrow's number will be lower then consensus, but we'll see.

Overall I have not changed my opinion regarding the EUR/USD. What I have done is close my position with about a 25 pip loss. Since I believe that a large potential correction exists for the pair, there's no reason to hold it right now, but I do have an order to sell it if and when the price goes below 3175.

If that does occur tonight, I still plan to exit the position prior to tomorrows reports and Fed statement. I'll re-assess at that time.

Remember also that the Fed is depending on a continued slowdown in housing to slow growth and that Greenspan also said a while back that housing had likely hit a bottom. We also had this report today:

http://bloomberg.com/apps/news?pid=2...wN4&refer=home

Traders also continued to pare bets that the Fed would cut rates at the March meeting. Only 28% believe now in a March rate cut. That leg of the theory is standing stronger then ever.
  • #40
  • Dec 11, 2006 4:31pm Dec 11, 2006 4:31pm
Quoting NewstraderFX
Greenie the Dollar Meanie:

Who said Forex was easy? As u know, I called for an end tothe Euro rally and I said it would continue as long as the fundamentals held. So we got an unsheduled fundamental release.

http://www.bloomberg.com/apps/news?p...d0M&refer=home

OK, Greenie says the current account is important. No doubt he's right and as it happens, we have the number coming out tomorrow. How might it go?

Well, as a currency devalues the cost of it's imports go up, which usually dampens demand leading to a shrinking of the trade deficit. There's a good chance tomorrow's number will be lower then consensus, but we'll see.

Overall I have not changed my opinion regarding the EUR/USD. What I have done is close my position with about a 25 pip loss. Since I believe that a large potential correction exists for the pair, there's no reason to hold it right now, but I do have an order to sell it if and when the price goes below 3175.

If that does occur tonight, I still plan to exit the position prior to tomorrows reports and Fed statement. I'll re-assess at that time.

Remember also that the Fed is depending on a continued slowdown in housing to slow growth and that Greenspan also said a while back that housing had likely hit a bottom. We also had this report today:

http://bloomberg.com/apps/news?pid=2...wN4&refer=home

Traders also continued to pare bets that the Fed would cut rates at the March meeting. Only 28% believe now in a March rate cut. That leg of the theory is standing stronger then ever.
last housing report was good news for the dollar.

just to make it clear, because of the fact that the USD is going lower, it will make the same items that are imported cost higher and thus the US would rather manufacture it themselves or not import it. Thus, this will help the trade balance to be a little better than expected thus good news for the dollar?
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