Sir Pipsalot's Friday Market Update 2-19-2010

Sir Pipsalot

Former FPA Special Consultant
Hey folks,

We got a big surprise in the market late on Thursday when the FOMC raised the discount rate by 0.25% at 1630 EST. This has kickstarted another clear wave of USD strength and stock market weakness. As I've said the last couple of days, the 1100-1104 level would be pretty magnetic, but it's very possible we top out in this region and head lower after we work through options expiration on Friday. Well, with this new piece of news, that down move seems to have gotten an early start with futures now down around 1094. I am shifting to a bearish EUR/USD stance meaning I'm willing to sell downwards momentum on longer term charts as well as on pullbacks.

I am also going to advocate fresh short entries on stocks here at 1094 on S&P futures as I speak (the market closed at 1106.75). We have a chance of floating back up near Thursday's close on Friday, but whether we do or not, there is a very compelling case for a reasonably sharp selloff starting from these 1107 highs that should take us well below 1000. Right now a SL at 1109 should be sufficient for a short to medium term trade.

In other news Thursday, we saw CAD CPI come out too close to expectations for a trade. News Friday will primarily dwell on Thursday's surprise decision out of the Fed and what it may mean for markets; however, we are getting fresh data related to the situation out of the US, so that may lead to a good trade if it's surprising:

0430 UK Retail Sales m/m (-0.5% expected) - This trade is usually quite reliable for 40-50 pips over the course of a 3-15 minutes. After that, it's anyone's ballgame, so if you're looking to capitalize on some form of follow-through after that initial period, work your technicals properly.
If it comes out at 0.1% or higher, GBP/USD should rally 40-50 pips.
If it comes out at -1.0% or lower, GBP/USD should fall 40-50 pips.

0830 US CPI Ex Food and Energy m/m (0.2% expected) - With the noticably high PPI data on Thursday, the market may anticipate a higher than expected reading on CPI this morning, so consider going long USD an hour before the news with a short on EUR/USD or GBP/USD. The aftermath of the news should see a decent reaction as well. Just make sure the Core y/y is in agreement (1.8% expected).
If Core CPI m/m comes out at 0.4% or higher, EUR/USD should fall 50+ pips.
If Core CPI m/m comes out at 0.3% & the y/y at 1.9% or higher, EUR/USD should fall 40 pips.
If Core CPI m/m comes out at 0.1% & the y/y at 1.7% or lower, EUR/USD should rally 40 pips.
If Core CPI m/m comes out at 0.0% or negative, EUR/USD should rally 50+ pips.

0830 CAD Retail Sales - Normally I would recommend focusing more on this release, but with the recent FOMC action, I think attention will be more focused on the US report at the same time and this may make the CAD less reliable, so I plan to leave the CAD alone on this one, but a skilled trader could take advantage of a 0.6 deviation or better if combined with the US CPI outcome to correctly choose between EUR/CAD and USD/CAD. If you have no idea what I'm talking about... don't worry... just skip it.

That's all for today's update. If you'd like to learn more about trading or trade along with myself and my collegues, come join us at Profit Mongers. Our subscription is very reasonable at $179 per month, and right now you can sign up for a 2 week trial to get started for only $29. This offer is for new customers only. If you have any questions, you can also email me at

To our success!
Sir Pipsalot
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