News of the finance

By FX Insights Moderator,

 Well we didn't get quite the volatility we saw yesterday, but we had some beautiful moves nontheless, courtesy of our good friend, Ben Bernanke...

As forecasted, all USD fundamentals were dismal today... no big news on that one... but of course the market was waiting to hear what Bernanke had to say in regards to the economic outlook and monetary policy...

I couldn't find a complete transcript of all the answers he gave to each question, I wish I could, because he said some of the stupidest things an economist and central banker has probably ever uttered in the history of mankind...

But, here's a few gems from his testimony and here's what propelled the EUR/USD to make more all-time highs and make a move to the 1.5150 level...

"Fed will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks"

"The economic situation has become distinctly less favorable"

"sluggish economic activity in the near term"

"The risks include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further"

Plus, he said something along the lines of inflation subsiding in the second half of the year. When asked about high oil prices and inflation, Bernanke said that the current price of oil was not causing heightened inflation pressures and that if the price of oil stayed in this range, it would not be an issue...

To sum it up, this is what Bernanke has told the market:

1. The Fed is cutting rates in March or sooner
2. The Fed doesn't know what inflation is
3. The Fed doesn't care to know what inflation is
4. The Fed will stay dovish on growth
5. The Fed is thrilled with a weak dollar because it fuels exports

And that's all the market needs to hear to keep selling dollars and buying euros... that is why we're just a handful of pips away from another all-time high... this is why we've been buying the euro for the past 500 pips, and this is why we must keep our overall bias until the market signals a change in direction... very simple.

Lets take a look at tomorrow's fundamentals...

Prelim GDP Annualized and Prelim GDP Deflator -- the Prelim GDP comes out a month after the Advanced GDP data, the Advanced is slightly more of a market-mover, but the Prelim is an incredibly important report especially because it's tightly connected to growth and interest rate policy and is usually revised in some form or fashion from what the Advanced is...

The market is forecasting a USD+ GDP tomorrow... I'm not so enthusiastic, based on my own research... but it really doesn't matter because I'm still biased to be euro long no matter what GDP says...

Initial Claims -- once again we'll see continued weakness in the jobs market... even if we get an upside surprise tomorrow, it won't be enough to give the dollar any kind of substantial boost...

Trichet -- he's slated to give opening remarks at some gathering at the Bank of Netherlands... there's no indication he'll speak about monetary policy or economic outlook, but we must be ready for anything...

Bernanke -- our boy is back on the hot seat tomorrow as he testifies before some braindead senators on one of the banking committees... Bernanke is probably happy he got the congressional testimony out of the way first, speifically getting Ron Paul out of the way first... once again, Ron Paul schooled the Fed chairman in economics 101 in front of the financial world... Bernanke was a bit exasperated after taking Paul's punches and ended up basically saying, "you're right again, Ron."

I don't expect Bernanke to say anything that will give the dollar any love at all whatsoever tomorrow... in order to slow the dollar's slide against the euro Bernanke would have to come out with guns blazin' on inflation... that's not going to happen...

EUR/USD:

The big question is on many trader's minds is:

Q. When's the euro going to stop?
A. I don't know.

Q. When is the euro going to correct?
A. I don't care.

I've added a few shorts on this move up, but for now, I'm not adding anymore shorts on a swing basis until I see some signs within the price action that we're topping out and going to head down... I may short on an intraday basis, like I took a short this afternoon at 5134, but I've got a take-profit order on it to close me out for +1 should the market move against me...

I'm still holding my best euro longs, including the last euro long we took on the new signal... those of you who got the screenshot from the signal know which one I'm referring to... that trade is now up over 400 pips.

My highest long is a 5044, which also has a take-profit order to close me out for +1 should the market drop tonight... I'm just not taking any chances in this crazy market conditions...

I have to stay biased long, end of story... I may look to add another euro short between the 5200 and 5300 area, but we'll see if/when we get there...

So, what will need to happen for the euro to correct down? A few important things, and any combination of these things:

*Profit takers to emerge
*Banks/brokers to allow enough traders to get heavy long and then to run stops on the euro longs
*Gold and oil profit takers to emerge
*Central bank buying of dollars or selling of euros
*A dovish ECB on growth and inflation
*Central bank verbal intervention (i.e. complaining about the high euro)

Those are some of the biggies that will need to happen... I'm not giving up on the coming correction of course, it'll happen, but we'll need some of those things listed about to give the dollar a push...

Practice strict money management!!!

See ya in the chat...

-FX Insights
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