EUR/USD Range Continues To Have Profit Potential

Trading Tip – We may already be late to the move and chasing price action is a bog cardinal sin, that is why we will wait for further confirmation before getting short the pair. A small risk is taken as the potential for extended gains is limited and we like to keep the risk reward in our favor. The proposal to develop a European monetary fund, similar to the IMF will be debated over the coming days and may limit any volatility for Euro crosses. The lack of a catalyst for risk appetite on the horizon favors a bout of profit taking which should benefit the dollar as it continues to be a source of funding for investors. Another test of the upper bound is a reasonable expectation and would give us an opportunity to find a better entry point. It may be difficult for market participants to get too excited over a labor report which showed another month of job losses which will perpetuate forecasts for unemployment to remain elevated until 2011.

Event Risk for Europe and the U.S.

Europe – The German trade balance is expected to have widened to 14.5B from 13.5B as the decline in imports is expected to outpace falling exports. Neither is a positive for Europe’s largest economy as weak foreign and domestic demand will threaten the current recovery. The ECB monthly report should be monitored for any clues to a future change in monetary policy, which is unlikely since the ECB has maintained that growth and inflation risks remained balance. Euro-Zone January industrial production is forecasted to have improved by 0.7% which shouldn’t inspire a significant amount of bullish sentiment giving the 1.6% decline the month prior. The Euro-Zone 4Q quarter employment reports may be the most significant release before next week’s consumer price report. A weak labor market would dim expectations for domestic demand and inflation, which will allow the ECB to remain on hold.

U.S. – The major upcoming event risk for the dollar is the Advance retail sales report which is forecasted to show a 0.1% decline as snow blanketed large parts of the country during February. The U.S. economy lost another 36K jobs during the month which is expected to weigh on domestic growth. Initial jobless claims will cross the wires ahead of the consumption figures which deserve attention given the volatility the weekly report has been generating. Traders will be looking for clues as to whether the labor market is improving or continuing to shed jobs. The U.S. trade balance will be released at the same time and evidence that demand from abroad is sustaining will raise expectations for future growth. Surging exports was a major reason for the economy seeing a 5.9% improvement in GDP during the fourth quarter.