Last week we saw some releases indicate that inflation is beginning to grow throughout the world. The big difference is the current trend of the central banks. We have ECB saying they’re watching closely to prevent inflationary problems, this translates to no rate cuts for the moment, and on the other side we have the FED saying they are more worried about growth than inflation, this translates into further rate cuts and a growing problem in the future with inflation and maybe even stagflation. This situation sent EUR/USD back to 1.4850, which has been the roof during the last few months.

            This week will be very important on the fundamental side of trading. We begin on Monday with the Existing Home Sales and an appearance by Trichet. This appearance could be very significant into a Dollar Rally during the week, WHY IS THAT? Well, the last two, and only two, times we’ve seen price action over 1.4900, Trichet has stated that a Euro that expensive is actually very harmful fur the European Economy. If he mentions something like that on Monday we will probably see EUR/USD head back below 1.4600 by mid week. Tuesday will bring PPI and Consumer Confidence for he US, both these numbers are well predicted so we don’t expect much of a surprise in there. However PPI is reading higher so it could influence Bernanke on how he speaks later along the week. Wednesday has Durable Goods and New Home Sales; however Bernanke speaks this same day so releases could be ignored until he speaks.  Bernanke’s speech to Congress will be crutial because he will have to explain what the Fed is going to do to solve the growth problem without falling into a inflationary problem. We could see him talk about focusing on inflation a bit more and this would trigger a Dollar Rally. We could also se him ignore the inflation and continue to speak about saving the economy from resesion and continue with a 50 bsp rate cut on March. This would keep EUR/USD over 1.4800. Thursday is pretty much the same as Jobless Claims and GDP will be ignored as Bernanke continues to speak to congress. Finally on Friday we will get CPI for EZ and Core Inflation, they both read a bit higher so ECB still has excuses not to cut interest rate on their next meeting.

            Technical side is shouting SHORT EUR/USD, we’ve seen a well marked channel between 1.4900 and 1.4300, were well at the top right now but wait until we hear from Central Bankers to see if this see saw movement will continue.

Daily Graph

EUR/USD is back reaching the roof of our channel. Both times we’ve seen it fall back was due to Trichet helping the USD. He speaks on Monday, Will he help the USD again?. If anything positive triggers the dollar bulls to step in, we’re going to see Euro Bulls taking profits and this is the perfect recipe to go Short on EUR/USD and get great profits.

Our analysis indicates Short EUR/USD every time it reaches 1.4840

• Take Profit 1:1.4760
• Take Profit 2: 1.4600