EUR/USD:1.3215/17: Though we had asked one to sell 50% of equity yesterday, under 1.3190, we finally decided to stand aside, as the EUR was quick to move over 1.3200. Today we would like to sell any spike under 1.3240 fo 50% of equity with a 1.3275 stop. Target is 1.3180-90.

GBP/USD:1.9629/31: The shorts for 40% of equity from 1.9640, were exited as planned with a 40 pip profit at 1.9600.

USD/CHF:1.2185/87: The longs from 1.2310 were exited at 1.2270. Today no trades recommended.

USD/JPY118.51/53: The Dollar longs from 120.80 were stopped below a 120.45 move. Today we can buy 25% of equity close to 118.25 with a 117. 80 stop. Target is 80 pips.

EUR/JPY:156.68/70: The 159.40 shorts were exited at 158.00. We would today wait for any spike close to 157.40 to sell again for 50% of equity and if done keep a 60 pip stop for a +100 pip dip.

The financial markets have taken a blood bath today with the Dow plunging over 400 points and the dollar hitting a 1 year low against the Japanese Yen. Risk appetite is plunging as investors bail out of nearly all assets. The moves have been very substantial and February 27, 2007 will either go down as a major historical turning point for the financial markets or an unparalleled buying opportunity. Durable goods orders dropped 7.8 percent in the month of January, which is the largest decline in 3 years. Even though consumer confidence hit a 5 year high and existing home sales increased by the largest amount in 2 years, the drop in durable goods orders was what mattered. As a component of GDP and a forward looking indicator for consumer consumption, the weak demand for big ticket items could trigger some concerns about the sustainability of the US recovery.
The limited decline in the US dollar against the Euro confirms our belief that the major move in the markets today is primarily a liquidation of leveraged bets. Hawkish commentary by the central bank and stronger money supply figures continued to fuel gains in the currency pair. Remaining at a 17-year high, M3 rose by 9.8 percent year over year. The market was only looking for a mild rise of 9.5 percent. German CPI still accelerated in the month of February even though the rise was slightly softer than expected. This indicates that the Value Added Tax increase is finally revealing its impact on consumer prices, albeit a mild one. Looking ahead, Eurozone unemployment, German unemployment, Eurozone consumer confidence and consumer prices are all due for release. Improvements are expected in all of the reports, which should continue to give the European Central Bank reason to lift interest rates.
Interestingly enough, the GBP/USD, which is normally a very volatile currency pair, had the tightest trading range today. There were no major data release yesterday, which means that we will have to look ahead to today’s data, including both the consumer confidence survey and the Nationwide Housing price report for more direction.
Elsewhere, movements in the Yen was the main focus as the currency skyrocketed against everything in sight. Carry trade liquidation is in full force and usually when this happens, it is not just a one day affair. After having already made great profits being long the Dow and the short the Japanese Yen, leveraged traders may not be as easily willing to get back into the market at this point, especially given the risks that the US economy faces. In fact, the liquidation could exacerbate as more traders bail out of risky assets. Major players are getting stopped out of their long trades and we expect more to come.