The EURUSD is vulnerable. Dropping below the short term channel (wave v of C) would suggest that a top is in place.

Real GDP in the world’s largest economy expanded 2.4 percent in the second quarter after climbing a revised 3.7 percent the quarter prior amid economists’ forecasts of 2.6 percent. Going forward, we may continue to see weak growth in the U.S. as stimulus measures begin to fade. Immediately following the disappointing data, the USD/JPY tumbled from 86.44 to an intraday low of 85.95, and the southern journey may continue going into the North American trade on the back of risk aversion.

The euro has come under pressure against the greenback and now looks to test the lower bounds of the rising channel. During the overnight trade, German retail sales for the month of June contracted 0.9 percent after climbing a revised 3.0 percent amid economists’ expectations of -0.2 percent.

The Euro pulled back on Friday and slipped to a low of 1.2980 during the overnight trade as investors scaled back their appetite for risk, and the shift in mark sentiment could lead the EUR/USD to retrace the advance from earlier this week as the economic docket is expected to show the world’s largest economy expanding at a slower pace in the second quarter.

by Brad Zigler

Real-time Monetary Inflation (last 12 months): -1.6%

Reserve currencies continued to take ground from gold this week. Sterling appreciated 4.1 percent against bullion while the euro rose 3.2 percent. Both the yen and the Swiss franc climbed 1.2 percent.

Another day, another slow motion, automated, train wreck-type move in equity futures trade. The European futures trade was held in a 0.5% range for 15 hours on Thursday, and then, on cue, just as the closing bell rang across Euro-land the high-frequency trading algorithms kicked in and wrecked the best laid plans of buy-and-holders. The moves decimated the near-term Dax, FTSE, and CAC charts. S/P futures responded, and handily smashed three 30-minute candles containing 1.5% of the S/P value into the lap of anybody looking to be in a trade for anything more than half a session. Cash markets are not to be trusted, especially with the Mad Hatter and Tweedle Dee and Tweedle Dumb running the show. Forex Movers- Thursday trade is all about melt-ups and melt-downs with Cad, Aussie, and Cable close to their opening prices after a huge swing back and forth overnight, in-line with global equity futures going on a roller coaster ride. Forex Shakers- Eur, Jpy, and Chf have all held their moves against the Usd, as global markets go into another melt-down. The current market conditions require a trade plan, a sound constitution, solid money management, a realistic view of what should be banked and when, and the understanding that trades may need to be taken on multiple occasions before one will hold. The markets are tradable, they just need agility, and an understanding of the fact that computer coding maybe went just a few X’s and O’s too far in regard to contingency hedges that seem to have been designed to cream those who are idly monitoring last quarter’s 401K statement. The computer coders replaced the trade desk specialist, and in doing so removed a path of liquidity that would balance the needs of all participants. No specialist on the desk means that computer algorithms are sent out to look for liquidity instead, and when they cannot find it the low-volume melt-ups and melt-downs appear. Low Liquidity
Inter-bank lending is not happening in any great degree, and is expensive to insure, which leads to a lack of leverage and a heightened distrust of holding anything past the closing bell. That scenario is then leading to the need to balance books at the close of every regional session, three times a day. After all, not many would trust a hefty open position to a computer algorithm if at any time between market close and market open the liquidity dries up.And so we have the new generation of global risk markets, built by default for traders and not investors, with nuances that many will take too long to adjust to. Suffice to say, it will be the prop desks that rape and pillage their way through 2010, and it will be the prop desk that issues a client note on January 1st 2011 that explains the reason why they made more in spread than performance fees, and that average Joe would be so much better off under their wing, because of the treacherous waters that lie beneath the Exchange floors. Instead of having a 300 point stop loss for a 20 point gain, the answer is to determine the 4-hour trend (90 SMA), look to trade in that direction with regular exposure, or counter-trend with 50% reduced exposure. Look to buy support at main price action points from the previous session, looking to the low of the day initially, and bank two sets of 30% of the position and pull the stop to the entry at target 1, before hitting the high of the previous day. Leave 40% as a runner that can test the previous HOD, and be prepared to close out if it fails to break. Timing The Trade
Keep an eye on the clock, and ride futures momentum at 2am (Dax), 6-7am (London Fixings), 11am European close, 2.30pm (Nymex close). Outside of those times, forget it, there is no momentum, and forget trading the cash market. Futures-based algorithms are stealing all of the moves ahead of the cash-trading herd. In these conditions there really is no need to look for dividends, which may cycle back into vogue eventually but that will take a while, as the dividend amount is always at risk of being diluted by depreciation in the underlying asset via the daily melts that are an integral part of the Exchange days. The easiest route to longevity is to trade in-line with global risk, and hedge that risk as required, with currency and futures contracts. Buy and Hold is dead; long live Futures Trading. Get in, get banked, get out, and sit by and watch the carnage happen while the analysts go about explaining why you should actually be in the wreck, rather than watching with your futures trades in the bank.

Disclosure: None

Crude recovered the two previous days' losses, gaining 1.8% today. We expected to see the 50 day MA give way and prices to trade lower, we were wrong. We would move to the sidelines until Crude gives a clearer signal on direction. We expect a trade above $79.50 to signal higher ground, and a trade below the 50 day MA at $76.35 to signal lower ground. Natural gas is higher by 2.44% as of this post, having gained all four sessions this week. For futures traders, as long as the 50 day MA holds, on a closing basis we would remain long. For option traders, we like purchasing 50 cent October and November call spreads.

We would think after a 50% Fibonacci retracement and a failure to remain above the 200 day MA indices are headed south again. Whether it be talk of deflation, a disappointing jobs number or lackluster earnings, a move below the 50 day into next week, at 1077 in the S&P confirms lower action. Aggressive traders could short indices with stops above the recent highs.

If there's on thing punters can rely on these days, it's for Mervyn King to sound as dovish as an albino pigeon trying to get into a "doves only" night at the disco. And yesterday was no different, with the Swerve downplaying the recent strong GDP print and bleating on about how spare capacity is likely to pull down inflation to target. Well, it hasn't yet, has it?

Team Macro Man is sure it is not alone in questioning the Bank of England's credibility here in the context of consistent upside surprises, both to its own and market-based inflation forecasts (see below chart of the UK inflation surprise index). The Bank repeatedly argues that the (supposedly) large output gap is likely to bring down inflation and that it should look through the "one-off" shocks of VAT and the currency depreciation of the past few years.

Yields are relatively static with dealers reluctant to sell bonds towards the top of the recent yield range for lack of evidence that central banks will normalize monetary policy anytime soon. Nevertheless they appear reluctant to dive deeper into the traditional safe haven offered by fixed income on signs of revitalized growth around the world. Providing a counterweight to a midweek report from the Fed indicating modest growth at best is a series of rising European confidence measures today casting the light firmly on the Eurozone as the surprising bastion of growth.

The U.S. dollar index reached its lowest point in three months as differences in the pace of recovery between the U.S. and the Eurozone rise to the surface. The latest evidence shows growing confidence within the region. Meanwhile the anecdotal U.S. regional evidence from the Fed’s 12 districts continued to prove that the domestic economy maintains a moderate pace of growth.

Global markets are absorbing a period of weakness that has equity and commodity sentiment placed firmly on the short side of global trade, and breaking a three-year inverse correlation that has allowed the dollar index to also be sold lower. A technical swing point of note in regard to global risk tolerance will be 1105 holding as support on a weekly S/P close, which may just help to stabilize the volatility a little.

The move out of the USD Up/Equity Down correlation, and vice versa, seems to have a lot to do with inflated Treasury note values, dropping U.S. yields, and question marks regarding the sustainability of American debt levels. Ironically, a lower value Usd may help in the very near-term to balance the twin deficits of the Trade and Current accounts.

It's the 24th year running that The Economist magazine has published its famed Big Mac Index -- a tongue-in-cheek way of measuring purchasing power parity (PPP) -- that is, the relative over and undervaluation of the world's currencies.

According to the theory of purchasing power parity, a dollar should buy the same amount of the same good across all countries. As a result, in the long run, the exchange rate between two countries should move towards the rate that equalizes the prices of an identical basket of goods and services in each country.

By comparing the cost of Big Macs -- a good produced in about 120 countries -- the Big Mac Index calculates the exchange rate (the Big Mac PPP) that would result in hamburgers costing the same in America as they do abroad. Compare the Big Mac PPP to the market exchange rates, and voilà!... you see which currencies are under or overvalued.