EURO/USD at Record Highs as Bernanke Eyes Further Cuts

Name: Michael Radkay Company: RDS Trader

Years Trading: 18 Favorite Movie: Raging Bull

The US Dollar continues to get slammed by the Euro as players took Bernanke comments this week to signify further rate cuts on the horizon. In last week’s article I predicted an assault on the 15000 Euro level, but traders are left with “now what” thoughts. Lower US rates and a steady European Central Bank (ECB) rate policy continue to weaken the value of the Greenback. This view has paid the Euro and the US Fed Fund Futures Bulls nicely as accelerants keep getting thrown on the fire. Fed Fund players do not think this trend is quite over yet as they have priced 75 basis points of further US cuts out to May-08 and are on the verge of adding 25 more…

In order to get a feel for what market participants feel the fed is going to do this spring, you can look to the pricing of the fed fund futures. If you take the current rate (3.00%), you will see current pricing at or near 97.00 (100 – 3.00 = 97.00). March-08 futures prices, which are dormy, sit near 97.25 or in other words factoring in roughly 100% chance the rate is going to come down 25 basis points to 2.75%. Looking out to May-08 fed funds futures are priced near 97.84. These participants are betting on 2.25% and possibly 2.00%.

The ECB’s President Jean-Claude Trichet sees rate cuts as inflationary and his proof is in the pudding as Oil climbs past the $100 per barrel level. Soaring prices are reverberating in the US grain markets as well with prices climbing 20%-40% across corn, bean, wheat and oat futures this year. Fed Chairman Bernanke is trying to head off potential recession threats as a result of the credit and housing slump. The fed will be monitoring the payrolls data due out the first week of March to see if a further stream of rate cut fuel is necessary. Tough times in the US and further rate cuts will keep the Euro Bulls assaulting record highs.

** Technically the Euro will continue its march with prices holding past the current 5 day flip level sitting near 14990. Underlying support holds at the yearly flip of 14765. With fundamental factors holding, prices look to face a key test of the near term resistance set at 15325 (up 5% on year). If the US economy continues to get a steady dose of Fed rate cuts fueled along with a sidelined ECB, the next resistance target of 15700 (up 7.5% on year) and a possible test of 16050 (up 10% on the year) is not such a wild thought…

In order to get a feel for my technical views without a bunch of lines smeared over a chart like a heart-attack EKG monitor, I use a NFL football field analogy. Each opposing end-zone is equivalent to the high and low of a trading market range. The gauge in football for momentum holders is the team that controls the ball on their opponent’s side of the field. The 50 yard line (flip point) in football sets equilibrium and its equivalent counterpart is the mid-point in trading. As we cross our opponent’s 50 yard line, we start to get excited and have the ability to use any play in our playbook. If we were sitting back near our own end-zone we would be cautious and conservative. Trading participants actions are fueled by these same emotions of fear and greed throughout the trading range. We begin to get a sense of what team is favored the “Bulls” (buyers) or the “Bears” (sellers). This helps define who is making money and who is losing money. If we are on the top half of the field, which we have been for the past 2 years with the Euro, the buyers are making more money and have strength. The sellers continue to lose money and lose strength. In hindsight you know which side you should have been on, now let’s work on some foresight…

The best part of trading is that you can change to the winning side as the market flips the field. I play with the money side and get off the train when technicals and fundamentals begin to shift.
The trick is to keep a balance of fundamental news along with a balance of key technical flip points. I favor daily, five day and yearly flip points. Try it (high + low /2 = 50% or the flip)…

About the Author

Michael Radkay (NFA Broker/Commodity Trading Adviser #02500761) mentors and prepares electronic traders. After receiving his BA in Economics from Lake Forest College in May of 1989, Mike has since then dedicated the last 18 years of his life to the futures industry.

The depth of his experience and skills as a futures trader, broker, coach and CBOT member dates back to 1993. The level of students that he has taught range from novice to professional. His knowledge is vast as he has traded through 3 presidential changes, 2 fed chairmen raising and cutting the fed funds rate to the extremes, the gulf war, 9/11, and the current Afghanistan / Iraq war.

Today he is trading through the current housing collapse and credit crunch. Students are thoroughly trained from this knowledge base and can access Mike’s daily analysis during the sessions. The materials consist of the comprehensive RDS Home-Study Guide (Learning the Game), RDS Daily Service (Pre-Game Routine) and RDS Interact (Game-Day Adjustments) that were specifically developed with the needs of a trader in mind. These tools will complement what you have learned during the coaching sessions.

E-Mail: mradkay@rdstrader.com / Website: www.rdstrader.com