The Euro Rally Is Still Dead-coreCPI/TIC Update

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

Here's the report from BB-it's a bit confusing, but I think this the important thing to look at:

So far this year, consumer prices are rising at a 2.2 percent rate, compared with a 3.8 percent rate in same period last year. Core prices are increasing at a 2.6 percent rate, after a 2.2 percent pace during the first 11 months of 2005.

So it looks like core CPI is rising higher (faster) this year then for the same period last year and that's it's still way above the Fed's preferred target of 1-2%.

The November increase in core consumer prices during the 12 months ended in November was the smallest year-over-year gain since June, today's figures showed. September's 2.9 percent rise was the biggest 12-month jump since 1996.

So core CPI may be trending down, but the bottom line is that it's .4 higher then for the same period last year. Certainly no indication yet that a rate cut is imminent. Definately not for March I would think. After that, maybe.

And yeah-the TIC data indicates huge foreign investment in equities and government paper...definately indicating where all the recent $ buying is coming from...

As far as trading it is concerned-this would be my suggestion.

3180 is a significant level. I would short it once it gets past there (if it does)around 75. If it goes above 80, get out. Everytime it goes below 80, short it again and get out if it goes above. I think it could go to 2970 once it starts to go, but I might be in and out a few times.

It could go back and forth over the 80 level several times, but I believe it will eventually drop from there. The point is that your gone once it goes above 80. Yeah you lose a couple of pips, but if you're tryin to catch the drop as I am AND you agree with me...there's no other way to do it. Start with a small position (a couple of mini's) and add to it as you get profitable.

I read this report , and I agree with you its confusing , based on the CPI numbers the inflation is still at threatening level for the Fed's to cut rates , I think it will be watched carefully and if any there should be another rate increase , what do you think ??

Are The EUR/USD Fundamentals Still Holding?

The dollar gained .9% against the Euro since I called the Euro rally dead.

Right now I'm neutral on the EUR/USD. Why? Possible change in the fundies-let's have a look...

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

This article is a bit contradictory-we did have no rise in coreCPI in Nov, BUT for the year to year period (first 11 months of the year), coreCPI is HIGHER this year then last by .4. Yes coreCPI seems to be trending down, but it's still .4 higher then for the same period last year. Things are looking good for inflation, but no obvious reason to cut rates yet.

The bond market rejoiced in this, but the $ basically strengthened Friday. My personal opinion is that the report indicates the Fed to be on hold thru March. The economy seems to be doing what the Fed thought it would do-inflation to moderate and growth at a sustainable trend. Remember that an ideal economy from a Fed point of view is inflation between 1-2% and GDP at sustainable levels-i.e no more then 2.5%.

Another good article:

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

As far as betting on rates-2 weeks ago there was almost a 100% certainty in the Fed Funds Futures market of a March cut. That has now dropped down to 11%. The inflow of foreign investment into equities, bonds etc was 80B in Oct. With the way the market has been going...we could see bigger and bigger numbers there too...certainly doesn't indicate $ weakness.

On the Euro side we have this:

http://bloomberg.com/apps/news?pid=2...E&refer=europe

OK, some are thinking the ECB will raise the rate again in Feb and a couple of their bankers mention rate increases aren't off the table, but that's not news. Remember that the ECB LOWERED it's inflation forcast and that inflation is still under it's target. Are their options for an increase still on the table? Sure, but that doesn't mean it's a sure thing. What is a sure thing is that they, along with the Fed, will do whichever is necessary as the data indicates. Remember also that the Nov inflation reading came after a big VAT increase in Germany.

So there appears to be a lot of contradictory info and thinking. I'm neutral on the EUR/USD right now. I want to gauge some market reaction before I do anything again.

My overall bias is still $+...but there's plenty of time to take a wait and see approach. As for trading, I'm looking for a break below 3170 to short. If it does break and i'm lucky enough to make some pips i'll do SL=BE and watch it from there. If it goes back above, i'm out, then if it's below again i'm short. If i'm lucky enough to make 20 pips i'll cut my lots by 1/2 and make another SL=BE, then ride it as long as I can, adding to it if the fundamentals warrant.

If traders take it up, I think 3150 is an important R level. I'm not sure I would go long before then, but a break could be significant.

With no real news out Monday-who knows maybe it will just trade in a band between those numbers. Maybe a little swing trading is in order.