Currency Currents

Key News

• The European Commission cut its forecast for economic growth and raised its projection for inflation, highlighting the dilemma facing the European Central Bank. (Bloomberg)
• U.K. retail sales rose more than twice as much in January as economists estimated after discounting by consumer-electronics stores and supermarkets. (Bloomberg)
• The U.S. faces the specter of stagflation, a combination of inflation and recession, for the first time since the 1970s. (Bloomberg)
• Crude-oil prices finished just above $100 a barrel for the first time, surprising many analysts who expected prices to fall. The latest surge, if it holds up, will make it tough for OPEC to cut output. (WSJ)

Key Reports Due (WSJ):

• 8:30a.m. Initial Jobless Claims. Expected: +2K. Previous: -9K.
• 10:00a.m. Jan Conference Board Leading Indicators. Previous: -0.2%.
• 10:00a.m. Feb Philadelphia Fed Business Index. Expected: -12. Previous: -20.9.
• 10:00a.m. DJ-BTMU Business Barometer For Feb 2. Previous: +0.2%.

Quotable

"I've seen a look in dogs' eyes, a quickly vanishing look of amazed contempt, and I am convinced that basically dogs think humans are nuts."

John Steinbeck

FX Trading - Beware the Whipsaws

The story hasn't changed much for Europe. The economy is expected to weaken and the sharp stick that is inflation is still poking European Central Bankers in their sides. Traders still seem unsure where the euro is ultimately headed. That's why we've witnessed quite a rollercoaster ride this week not for the faint of heart …

EURUSD

We're bearish the euro over the intermediate-term but it may take central bank commitment to an accommodative monetary policy before the euro takes a decisive downturn.

Let's face it: trading all the currencies lately has required some serious intestinal fortitude. Hopefully you weren't stuck short the British pound over night. When a report revealing stronger-than-expected U.K. retail sales was released overnight the pound took off like a rocket. That of course follows a couple days of steep declines.

GBPUSD

There seems to be little disagreement on the long-term outlook for the pound. British pound sentiment has taken on an overwhelmingly bearish feel. Maybe it actually will take on the role of the U.S. dollar for all of 2008.

And unless you can change direction like John Kerry, you probably haven't had much fun trying to trade the Canadian dollar lately. Despite surging commodity prices - gold and oil, particularly - and relatively stable Australian and New Zealand dollars, the Canadian dollar hasn't done much but make a lot of noise.

USDCAD

Those are some serious intra-day whipsaws that you can only hope to steer clear of.

Good luck out there.

Jack Crooks
Black Swan Capital
http://www.blackswantrading.com

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