Truth is Treason in the Empire of Lies

By FX Insights Moderator,

Another key fundamental week sits before us. There’s not a ton of data this week, which is a bit of a relief, but what we do get is very critical for the near-term.

Here’s some of the bigger events on this week’s calendar:

*ECB Interest Rate Decision
*Trichet Interest Rate Press Conference
*Two Bernanke Speeches
*Fed Speeches
*FOMC Meeting Minutes
*Trade Balance
*German and French Industrial Production
*Pending Home Sales
*Import Price Index
*Michigan Sentiment

NFP Re-cap:

Before we look at this week, I need to cover a few things with last Friday’s Non Farm payrolls. The headline number for NFP was way worse than my forecast and the market’s forecast. The Unemployment Rate was as I’d forecasted and above the market’s forecast. Plus, the prior NFP release was revised lower.

Upon release we saw the euro spike up about 50 pips only to drop about 100 pips rather quickly, then finishing the day hitting resistance in the 1.5720’s. Was Friday’s NFP a short or a long? Well, it could have been both or either… money was made on both sides of the market. The euro long we called @ 5645 in the chat the night before NFP paid out over 100 pips and any shorts taken after the data was released were worth at least 70 pips or more. So, congrats to all who survived and profited from NFP…

OK, a few thoughts on Friday’s NFP as it relates to trading the EUR/USD… as you well know, we didn’t see the USD get hammered based on the USD- data.

Banks: as I’ve told you in the past, all the major bank players have their own economists who forecast what they think NFP will print at. A good number of the big banks were actually forecasting a net loss of -95K to -100K jobs. The headline print was -80K which was at least +15K better than a lot of the banks were anticipating. That’s one reason we didn’t see the big bank movers rock the market on Friday.

That being said, the banks don’t always trade the number right out of the gate. Sometimes the response and reaction comes a few days later… what the banks will likely be doing now is assessing the jobs situation as it relates to the Fed’s interest rate possibilities for the next meeting and based on this, they will decide whether or not to react to NFP.

Recession: undoubtedly Friday’s NFP has heated up talks of recession. Recessions don’t always translate into the dollar getting reamed, though. Plus, the present jobs situation is better than it was during our last recession. Current NFP and Initial Claims numbers are fairing better than they did during previous recessions. This factor will lend the USD some support even though the jobs market continues to deteriorate in 2008.

I’m not going to take up any more time on this here… was a net loss of 80K jobs bad? Yes, of course. Was it as bad as some of the banks thought it would be? No, not quite. So, what does it all mean? Overall, it’s not a USD+ situation and will likely keep the dollar pressured this week, especially on the back of the Unemployment Rate that ticked up higher than the market forecasted. Is it going to be enough to push us back and over 1.5900? No, I don’t think this jobs data is going to give the market enough momentum to break that level…

What happens this week certainly could, though…

Tomorrow:

As usual, we’ll cover each coming day’s fundamentals in the daily updates, but here we’ll cover what’s going tomorrow…

German Industrial Production — market’s forecast is to show no growth out of the German industrial sector. I have to agree. The past three weeks worth of data and research has shown more visible signs of European growth slowing and the momentum for slowed growth starting to pick up. We could even see a negative number on German Industrial Production tomorrow.

Consumer Credit — this report is not much of an instant market-mover, but it’s a very key piece of data. 2/3’s of the U.S. economy is largely dependent upon the consumer to keep buying, spending, and borrowing… the U.S. is set-up in such a way that it almost cannot grow and expand if the American consumer is not borrowing money, getting loans, getting multiple loans, and keeping high debt/credit ratios.

My research shows the consumer is continuing to hunker down and pullback. This is not a good overall sign for the USD. Plus, because the banks have been tightening their lending standards it’s even more difficult for consumers to get loans, to get credit cards, and to get secured lines of credit.

Here’s what’s really scary: according to the ABA, U.S. consumers are behind on credit payments at the highest rates seen in 16-years. The ABA said the percentage of loans at least 30-days past due rose to 2.65% in Q4. That’s up from 2.44% in Q3 and 2.23% a year ago. The rate of delinquencies was the highest since Q1 of ‘92 when it was at 2.75%.

Credit and debit card delinquencies are up to 4.38% after making four straight quarterly declines. Delinquencies on home equity loans are at 2.5 year highs.

When I discover this information during my research on the consumer sector I can’t help but believe the consumer will further pullback in the near-term and this will only serve to hammer GDP and keep the USD under pressure.

EUR/USD:

Obviously the biggest even this week is Thursday’s ECB rate decision and the following press conference by Trichet. With CPI well above the ECB’s target of 2.0% I really see no way Trichet can drop rates this go around. It’s just not possible. Trichet’s remained way to hawkish on price stability to shock the markets with a surprise rate cut.

So, the market will be watching and listening to his press conference for any signs on lowered growth expectations and for signs or signals of future rate cuts.

Now, this doesn’t mean we won’t see bigger sustained moves before Thursday. I can almost assure the market will not just wait all week to hear what Trichet has to say.

The past two weeks I’ve seen a considerable lack of upside momentum for the euro… with each new high it attempts to make, it gets rejected at those key levels and is pushed back even further to test the downside.

This does not alarm me, however. My bias to be euro long must remain intact for now at this stage in the game. This doesn’t mean I won’t short the euro when the price action or fundamentals show me a good opportunity, but I have no plans to close my euro longs that have been open on a swing basis. And, I’m not going to be loading the boat with euro shorts until I at least hear what Trichet has to say on Thursday.

I’m going to largely depend on the following this week to show me where and when to trade:

1. Price action — with the fundamentals sometimes being USD+, then sometimes being USD-, then sometimes being EUR+, then sometimes being EUR-, I have to focus even closer on price action, EUR/USD price patterns, and real-time price moves to get a feel for what the market wants to do.

2. Commodities — gold and oil have rebounded but they too are sitting near key resistance levels, I believe. If these two commodities stall out and correct, they will bring the euro down with them.

Fundamentally, the USD is abysmal. But, with the Eurozone fundamentals showing signs of weakness, there’s not exactly a lot of excitement to buy up the euro either.

After the market opens today and I see a few timeframes worth of price action I will try to post some of my key levels to be mindful of.

If you have some euro longs below the 1.5650 level it might be a good idea to hang on to those and throw a +1 on in the even the market takes a drop. As always, it’s imperative you practice strict risk and money management heading into this week… it’s entirely possible the banks decide to respond to Friday’s NFP sometime between market open and Europe/London/NY sessions…

Tomorrow’s live audio Q and A session will be at 1100 EST as long as the market allows….

In case you missed it, take a moment to read my Trading Personality post here.

That’s all for now… be smart, don’t overleverage, and we’ll see ya in the chat…

-FX Insights

EURUSD Financials 4-6-08 thru 4-11-08.xls