FX Insights: EOD Forex Trade Team Update – 31/03/2008

By FX Insights Moderator,

Not a whole lot out of the ordinary or unexpected today… we were euro long for the end of quarter euro run up, which we got this morning with the euro hitting our key level of 1.5898 to the pip…

At that point gold and oil decided to noisedive bringing the EUR/USD right down with it… gold and oil have sold-off pretty hard, keeping the euro under downside pressure…

Fundamentally, the biggest data today was Eurozone CPI which came in hotter than expected, printing at 3.5% and remaining well above the ECB’s target rate of 2.0%. This pretty much wipes out any chance of the ECB cutting interest rates in April… Trichet is way to hawkish on price stability to cut rates in light of rising inflation. Obviously the ECB is not taking a page from the Fed and lying about inflation in order to appease financial markets with artifically low rates and price-fixing measures.

Tomorrow:

Lots of data out of the Eurozone tomorrow… I don’t expect any real surprises except for maybe a downside on the German Retail Sales.

By far the biggest data tomorrow is ISM. My research on the manufacturing sector continues to show weakness and sluggish recovery. In addition to the headline number it will be important for us to disesct the employment, inventory, and price paid components to get an overall clear picture on the manufacturing situation.

I’m also forecasting Construction Spending to remain weak and under pressure.

As we’ve been saying for a week or more now, the most important things to watch in addition to the EUR/USD price action is what’s happening with commodities. If gold and oil continue to come down the euro will have to come down with them. It’s really that simple.

Tonight we’ve already tested the 1.5750 level and bounced but further downside is possible if gold and oil do not find support and buyers. Again, don’t be nievely fooled into thinking the dollar is getting strong or the euro is getting weak.

There’s no dollar rally happening here. The dollar is fundamentally weak and with more rate cuts looming, it will stay fundamentall weak. Case close on that deal…

It’s also important to remember we’re in an NFP week and as the week draws on we can see the banks positioning themselves for Friday’s data.

As I mentioned in Sunday’s update, we also need to keep an eye out for any bad news out of the European or German banking sector. We’ve gone quite a few months without hearing any bad news and I think we’re getting close to hearing some bad news, which would put a definite hurting on the euro…

EUR/USD:

Still biased euro long. No change there. Not until I see something in the price action or within the overall market fundamentals will I change my bias. I’m holding all of my best euro longs from 4595 on up. And a little bit of drawdown or correction is not going to shake my positions.

I think that covers everything… my only new euro longs are signal trades, other than that, I’m laying low for now…

I added a new post about using price action to find tops/bottoms. You can read it here.

See ya in the chat!

-FX Insights