$ For The Week Of 11/27-With Trade Ideas

Where Do We Go From Here?

There's a few theories concerning the $ weakness last week. Interest rate expectations, thin trading, automatic stops etc, but the question is where to now? It's kind of a chicken-egg thing-yes the "automatic stops" got triggered, but what was it that pushed the Euro to those stops in the first place? For my money it's the diverging interest rate expectations. No doubt the absence of Asian and NY traders allowed Europe to push the Euro higher, but might not NY jump on the bandwagon Monday? There's just no data indicating the Fed is going to do anything but hold, especially as they see core CPI "moderating" while housing is remaining weak, while the expectation everywhere is for the ECB to hike the rate, given that they see inflation staying above their desired level.

If you look at a chart-the $ weakness really began in the London sesssion the day after the last core CPI reading, which confirmed the Fed's outlook in the November minutes (for the time being) as to the direction of the core CPI. It got confirmed in NY after the weak housing data later that day.

Speaking of housing, there's serious debate as to where the bottom is really gonna be (and to what level GDP will be affected), but there's a few things to be aware of:

The baby boomers are aging out of the housing market and there's less of a population to buy new housing. Almost 70% of the US population already owns housing. Housing retailers like Home Depot and Lowes are not doing so well. Inventories remain very high. At these price levels, the affordability still remains out of reach for many of the fewer young buyers in the market. Any way you look at it-for the foreseeable future there are less buyers available and an absence of any indicators showing a bottom.

There's plenty of factors present for arguing either way for the $: Fed rate cuts and ECB rate increases for $ weakness. NY could jump on the bandwagon and go with European traders; The ECB doesn't want the Euro going higher, traders taking profits and the $ is at oversold levels for $ strength...definately not an easy enviorment.

Then we had this German trade minister saying German businesses were happy with the Euro rise-why wouldn't they be? With all the wealth in London, NY and China-I'm sure the market for high-end BMW's and MB's won't dry up if the Euro appreciates a bit...

I'll tell you a funny coincidence though-some of these "automatic stop levels" matched where I had some orders to buy the Euro. I booked 2/3 of my profit as of Friday afternoon, so I still have 1/3 of my Euro long position. Maybe the same thing will happen in general...

Seriously though, if you're still Euro long, I would consider further reducing the position. I want to watch the Asian open for clues, then see how it trades in London, then see if NY appears to be going with the European traders. No prediction either way really, but after I've had a big gain (and price is at a level not seen for a long time) I prefer to take profit, then sit back and observe. I felt very certain about direction a couple of days ago and now, I feel like I don't. I want to try and gauge further market sentiment before taking another position. If you have a clear idea, more power to you.

The US data is kind of light until GDP which is forecasted between 1.5 and 1.9. Perhaps that does portend to some further $ weakness as there's no strong data available to change overall opinion...we'll see. The following chart is from ISR and lists the IFR estimate, followed by the previous number, consensus and consensus range.

DATE EST RELEASE PER IFR EST LAST MIED RANGE ]<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>

28Nov <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /><st1:time Minute="30" Hour="8">08:30</st1:time> Durable Goods %m/m Oct -5.1 8.3 -5.1 -6.3 -3.0<o></o>

28Nov <st1:time Minute="30" Hour="8">08:30</st1:time> ex Transportation %m/m Oct 0.1 0.5 0.1 -0.3 0.8<o></o>

28Nov <st1:time Minute="0" Hour="10">10:00</st1:time> Cons Confidence Idx Nov 105.0 105.4 105.8 105.0 110.0<o></o>

28Nov <st1:time Minute="0" Hour="10">10:00</st1:time> Existing Home Sales k,AR Oct 6140 6180 6140 6000 6250<o></o>

29Nov <st1:time Minute="30" Hour="8">08:30</st1:time> GDP %,AR pQ3 1.5 1.6 1.8 1.5 1.9<o></o>

29Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Chain Wgt Pr Idx %,AR pQ3 1.8 1.8 1.8 1.8 1.8<o></o>

29Nov <st1:time Minute="0" Hour="10">10:00</st1:time> New Home Sales k,AR Oct 1050 1075 1050 1000 1070<o></o>

30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Initial Claims k 11/25 315 321 314 310 330<o></o>

30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Cont Claims k 11/18 2455 2454 2428 2400 2455<o></o>

30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Personal Income %m/m Oct 0.4 0.5 0.5 0.4 0.5<o></o>

30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Consumption %m/m Oct 0.1 0.1 0.2 -0.1 0.2<o></o>

30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Core PCE Deflator %y/y Oct 2.3 2.4 2.3 2.2 2.3<o></o>

30Nov <st1:time Minute="0" Hour="10">10:00</st1:time> <st1:City><st1lace>Chicago</st1lace></st1:City> PMI Idx Nov 54.0 53.5 54.5 53.0 56.0<o></o>

01Dec <st1:time Minute="0" Hour="10">10:00</st1:time> Construction Spendi %m/m Oct -0.5 -0.3 -0.3 -0.5 0.0<o></o>

01Dec <st1:time Minute="0" Hour="10">10:00</st1:time> ISM Index Idx Nov 52.5 51.2 52.1 51.0 54.0<o></o>

01Dec <st1:time Minute="45" Hour="15">15:45</st1:time> Domestic Vehicle Sl m,AR Nov 12.5 12.3 12.5 12.3 12.8<o></o>

01Dec <st1:time Minute="45" Hour="15">15:45</st1:time> Car Sales m,AR Nov 5.3 5.0 5.3 5.2 5.3<o></o>

01Dec <st1:time Minute="45" Hour="15">15:45</st1:time> Truck Sales Light m,AR Nov 7.2 7.3 7.4 7.1 7.5<o></o>

Why did I study electrical engineering instead of economy??...

NewstraderFX, thanks for the info, I hope you will keep posting your thoughts....

Cheers...

How You Gonna Trade This?

Good question. I think I have a plan; my plan is to not have a plan. No pre-concieved ideas about how high the Euro could go, whether it's overbought or who might take profits when.

Maybe it's because I kinda realized something a while back: My "Broker" (and I use the term for lack of a better one) is really my "Bookie". My "Forex Bookie" works exactly as my "Football Bookie" works: they're both the counterparty to my "position". They both bet against me-knowing in the long run 90% of the traders are gonna lose.

That's not to discourage you or me-and it doesn't mean that you or I can't pick winning trades-just that it's crucial to know that you, me and many of the professional traders are going to be wrong very frequently, so the real key is to minimize the losses and maximise the wins. Easier said then done.

For my thininking-Forex works like this: the market is driven back and forth by "minor fundamentals" e.g. NFP, CPI etc within a technical range and the technical range gets broken by the "major fundamental"- interest rates and the market's perception of of where they're gonna go. The minor fundamentals work on the same principle as the major fundamental (they temporarily change the markets perception of the direction of interest rates), but their effect tends to be short lived; how many times have you seen the NFP make the dollar stronger, then the PPI (or whatever) come out $ negative 2 days later push it the other way?

What we have now is obviousy the major fundamental working-the vast majority are thinking the same way at the same time, that the Fed is definately on hold and more likely to lower then raise in the near future, while the ECB, BoE and BoJ look to be raising. We could debate the reason why, but I've already thrown in my 2 cents so no need to do so again.The big question is obviously how much longer will this fundamental be driving the market.

OK since it's my thread, i'll give you my opinion, but keep a couple of things in mind. I've already made quite a bit on this and I want to be careful with my profit. I may be more happy then you to sit on the sidelines a bit and watch things for awhile. I'm not an alert service and I don't want to be one. I like to write about this and I enjoy debating-that's why I do it. I'm not telling anyone how to trade-the only trading advice I have is to manage your money carefully and to trade positions so as your SL, if hit, does not represent more then 2-3% of your account. Oh and have the homepages of the FOMC (http://www.federalreserve.gov/FOMC/), BoE(http://www.bankofengland.co.uk/index.htm) and ECB (http://www.ecb.int/ecb/html/index.en.html) on your favorites list. And check how Options on federal funds futures are trading (since 2003, when former Fed chairman Alan Greenspan introduced forward-looking language into statements announcing rate decisions, futures have become almost 100 percent accurate in predicting what the Fed will do within seven weeks of its next meeting) Now here goes:

IMHO, the Euro rally started on 11/17 when the $- housing numbers were released. This came the day after the $- core CPI and 2 days after the FOMC minutes which stated the core CPI was expected to "moderate" and that housing was likely to remain a "substantial drag on the economic growth over the next few quarters.." What happened by that Friday was the core CPI and housing numbers reflecting the Fed's thinking exactly. It was as strong a confirmation as you could have that the Fed would remain on hold and was more likely to be lowering in the future then raising. This was confirmed by trading in the Fed Fund Futures.

I intend to be on the sidelines for awhile while London trades on Monday, in order to try and gauge things. Get the trend over the first couple of hours in their trading. If they are still trending towards $ weakness (EUR/USD over 3100)-IMHO-NY will go with their trend. London started this, definately confirmed it and I don't think NY will go against the trend they've established, at least not on Monday morning. There's still plenty of up-side potential if the established trend continues to get confirmed. If London trades it the other way and their trend is clearly down, IMHO NY will go with that too. Obviously, there's plenty of downside potential here. Plenty of pips to be made either way it goes.

So that's my big idea for whatever it's worth. London started this and they're gonna finish it. NY is gonna go with whichever trend they establish during their Monday session.

I'd like to ask a simple questions to Americans in general and Amercan Forex Traders in particular:

How do you like the current USD Negativity?

That should give us a clue whether there will be a USD Rebound or continued downfall.

Personally, I think the USD short was overdone.

I am a trend trader. I am indifferent. I could care less. I make money any way it goes.

BK

I also think the $ shorts have gone a bit to far. It is not in any countrys best interest to de-value the $ much more as it will only hurt them in the long run.
Though as Mr. Trend mentioned being indifferent is a better course for those of us retail traders. We can make money no matter which way things go.

Fyi - if past history tells a story - December has not been a good month for the $

Good Luck & Happy Holidays

Nothing really happened over the first part of the Monday London session-maybe slightly stronger for the $, but nothing really to jump on...maybe the market's waiting for Bernanke tomorrow...

Can this be the calm before the storm? Such as Chairman Bernanke Speaks or non-farms next week? There alwasy speculation that moves the market before huge movers. Just a thought.

No predictions, but next objective seems to be 1.34 - 1.36 for Euro...

Maybe This Has Run It's Course-For Now:

All fundamentals have a half-life and perhaps this one has run it's course for now. London showed no further enthusiasm for $ weakness and might just be waiting for the next set of numbers. NY seems to have traded along with London. The US numbers are predicted to be weaker this week (except for CC) so we'll see if this bears out.

Bernanke's speech tomorrow might also have but the brakes on this, although I tend to think whatever he says wil likely mirror the last minutes.

So if the speech goes as expected and the coming numbers show weakness (especially the housing) there's a good chance the EURO rally will resume.

Also saw an interesting video on BB-they were talking about where the EURO and GBP could go (1.3500/2.000) They saw the pound with much more upside potential, due to ECB verbal intervention and possible ECB real intervention vs. no verbal or real intervention by the B0E.

We are hearing some quotes from the ECB ministers. No doubt, a stronger Euro will effect the bottom line of exporters while the consumer benefits.

An article in the NY papers today said record numbers of European consumers are coming to NY, basically funding their trips with the savings. For example, a dress that's 580 in London and 425 in NY; Microsoft Zune, 442/248; Panasonic DVD cam-corder, 1368/999.

Interestingly, 3 non-stop flights/day arrive from Europe at the Mall of America in Minnesota, the world's largest shopping center.

Monday the USD weakened, but after reaching 1.317 it returned to Friday's
levels. Tuesday the US government releases revised Q3 GDP, the Conference
Board its consumer confidence index, and Bernanke speaks. If the outlook
corresponds to expectations the USD will find no reason to recover.
Next objective 1.34

Monday, the USD strengthen not because it was strong but because when the market opened, early birds immediately shorted the USD - thus the huge knee jerk rise in GBPUSd and EURUSD, afterwards, it slowly went back. US strong? nope.

We will see if we should indeed short the USD further when Consumer Confidences, Ben, Durable Goods are indicating a bad US economic slowdown or not.

If we were to base economy on the housing industry, US is indeed in a bad fix. Was the 17 Rate Hikes overdone? What is important? Inflation or Economic Growth? Ben will have a lot of explaining to do to the Americans is the US economy went into recession next year. So I'd listen carefully to Ben if he so ever hinted on such a thing.

The EURO and GBP have "Gapped" (Or Silence Speaks Loudest):

I think it's interesting how much the $ has weakened vs the pound (about 50 pips) overnight and into the London session as compared to the Euro (just a couple). I guess some of the ECB statements threw a bit of cold water on things. Meanwhile, the silence from the UK has spoken volumes-they obviously have no problem with things so far-I guess that means they want things this way-for now.

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

http://www.bloomberg.com/apps/news?p...8lI&refer=home

There are some voices saying that US housing is now in "recession"-a word we'll hear much more of if today's number comes out weaker then expected. "Spillover" is another term you'll hear more of should the number come out weak. Might be a good time to short some bank/mortgage lender stocks as well...

Be prepared for a good trade off the durable and housing numbers-but don't be surprised if the reaction is muted-the market might be waiting for Chairman Bernanke @ 12.30 EST

I was wondering the same thing. I do not know how likely it is that Big Ben will comment on these recent currency developements and short term economic policy in this speech.

Newstrader thanks for you insight.
Clearly the interest rate hike appears to be on hold.
that being said it looks like a rumor from TTN has a ceiling at 1.9500 on the pound.

If it goes thru there who knows.
I trade long or short. Price action and value, it will be interesting to see how the Consumer confidence comes out. I expect the housing numbers to be down again. If CC is flat and housing down then expect the Pound to test 9500.
If CC is up and housing numbers down, maybe a pullback. I think the traders expect the housing numbers to be down. thats a given

if CC is down and housing numbers are up, then we might break through 9500.
I made about 15pips this morning. Im a little hesistant to go for the 10am news. Cause my feeling is that the news will be conflicting. Your thoughts fellas.

I meant to write if housing and Consumer Confidence down, then expect a test of 1.9500.

CC and Durables Down and Housing Up:

Well that's how fast things can change-also why if you trade news-u gotta wait for the numbers. Everyone and their mother was expecting the housing number to be down. Could have been a fantastic trade if it had worked out that way.

This could be the beginning of a bottom in housing, but still too early to tell. Housing still down over 11% from last year. Remember that our old pal Greenspan said housing was just about at a bottom a few weeks back...maybe the old guy hasn't lost his touch...

I'm not sayin this will happen right now, but the thinking can change very quickly. The bond markets have priced in about a 50% chance of a rate cut in March...i'm sure it's been priced into the recent $ weakness too. Obvioulsly the EUR and GBP are at levels not seen for quite some time. If somebody sticks a needle in this ballon...POP!! If you want to make a couple hundred pips on the way down...u gotta be ready for it, so stay ready!

Let's see what the chairman has to say...

Anyone in any trades right now? I see people making pips off of the news and wonder how do you do that? FXCM seems to freeze so people can't make money, even though I am trading directly through a bank using their platform...I lost 15 pips today...If you are trading the EUR/USD are you buying dips or what is your strategy?

u think ben could say that the economy is looking great now and the gbp would drop 200 pips i know not today but over some days? No way IMO the world knows better

So far, the market has not taken the Bernanke comments as being strong for the $, as it has weakened somewhat...I would look for the EUR to close NY over 3200 and the pound to close NY over 9500, before going long again. I think that if that happens, the dollar will weaken further in Asia and London, absent any other news...If they don't, then i'll have to sit back for awhile...

The Eur closed just over 3200 in NY-I've got a smallish long position in the GBP-if it goes I can always add to it...