·    Bloomberg reports Germany may use KfW bank to buy Greek debt
·    EU says Greece needs another EUR 4 bln in budget cuts
·    Chicago PMI rises to 62.6 from 61.5; stronger than expected
·    Reuters: Long dollar position on IMM* largest since Lehman collapse
·    S&P 500 rises 0.1%
·    Oil up 1.51 to $79.68; gold little changed at $1116
·    AIG reports large loss, says may need more government aid
·    US Q4 GDP revised to +5.9% from 5.7%, consumer spending weak
·    University of Michigan consumer sentiment index falls to 73.6 from 74.4
·    US existing home sales fall 7.2% in January
·    S&P says US’s AAA rating “hanging in there”

EUR/USD traded with a cautious tone in early US trade, based mostly on continued  EU pressuring on Greece for deeper deficit cuts and on risk aversion after AIG said it may need more US funds. Once US economic data was out of the way prices began to recover somewhat, with the market also reacting a Bloomberg story which outlines a potential German plan to buy Greek debt. That, combined with month-end euro demand and short-covering sent EUR/USD up from the 1.3560 area to a high of 1.3683 shortly before the European close. Central banks were sellers into strength today once again, just as they were buyers of weakness early in the session. Rumor has it that stops continue to build in the 1.3700 area.

EUR/USD has had a real hard time closing above our major trendline, doing it just one time on Feb 16, making yesterday’s break an important development. We closed above the line on February 16 at the 1.3780/90’s level before plunging to close the next day at 1.3600. this is a trade setup that I went over in my posts for that same week back when I was still very sure of my dovish stance on the pair. Although that wasn’t much of a signal then, this more recent one truly is a warning sign for the bears, as is the fact that EUR/USD penetrated the 61.8% retracement of the 1.2448/1.5146 rally, that I also went over in earlier posts, twice in the last six sessions but has yet to close below it. As it stands now I am slightly bullish, but it doesn’t take much to turn that around, and this week will certainly be the most crucial week of trading in three weeks.

So here’s where I stand as a trader going forward. Since January I have argued that the US Dollar was likely to recover against the Euro and other key counterparts on extremely one-sided bearish positioning and sentiment. Looking back I wish conditions were still so easy to read now as they were back then, yet the tables are still clearly turned in the Dollar’s favor with the  CFTC Commitment of Traders data showing Non-Commercials at a record net-long the US currency against the Euro. This week’s fundamentals will be the deciding factor on which way this currency pair decides to go, and I doubt the ranges we’ve been seeing will continue after this coming week.

On Monday US Personal Income and Spending data comes out at 8:30 as well as the later-morning ISM Manufacturing survey at 10:00 am. If we see large disappointments in either one of those numbers it could potentially set the tone for the rest of the week’s trade. Recently we’ve had poor Consumer Confidence numbers painting a dreary picture for the future of domestic consumption, but spending and income numbers are forecast to show reasonable gains through the first month of 2010. Consensus expectations likewise point to reasonable strength in ISM Manufacturing data. Bear in mind though that lofty expectations beget disappointments and we could see considerable volatility surrounding said event risk.

After that we look for Wednesday’s key ADP Employment Change survey data (8:15 am) as well as the ISM Services report (9:15 am). The former is expected to show that private companies shed 10,000 jobs from Payrolls through the month of February—the best such result since January of 2008. As we continue to see smaller job loss numbers in the ADP report and official Nonfarm Payrolls data, it leaves hope that we may continue to see improvements, but any sizeable declines could easily derail expectations for future recovery. The ISM Services Employment Index will certainly be looked upon to shed some light on the state of the jobs market and help foreshadow what we may expect for Friday’s NFP numbers. Said index remains below the expansion/contraction 50.0 mark at 44.0, and it will be critical to see whether conditions improved for the all-important US Services sector.

Finally, as most everyone is aware, the US Nonfarm Payrolls report promises a great deal of volatility not only in the US Dollar, but major financial markets are likely to see sharp price moves on any especially surprising results.

It seems that financial markets are at somewhat of a crossroads. One could certainly make the case that steady improvements in economic data suggest that the worst is now past. On the other, heady gains in the S&P 500 and other key financial market risk barometers leave the door wide open for pullbacks. The week ahead should provide ample clarification on several key themes for the S&P 500, which is very highly-correlated with the US Dollar. Good luck to you!!!

Here are the news events to watch for effecting the EUR/USD.

Tuesday at 4;00 am,  German Ifo Business Climate comes out and generally has a decent effect on the market due to its large sample size (7,000) and historic correlation with German and wider Eurozone economic conditions.

Tuesday at 10:00 am, CB Consumer Confidence is released, a survey of about 5,000 households, measures the financial confidence of US citizens and would lend support to the idea of U.S. stability if the numbers come out at or above the forecasted 55. This has occurred three months in a row now since November so this report combined with the German Ifo Business Climate report could be a momentum builder to break this currency pair out of its’ ranges.

Wednesday at 10:00 am, several things are happening. Bernanke will be testifying and could drop one or two surprises so don’t be caught off guard that day. Also at the same time, U.S. new Home Sales data is released, so watch for that.

Thursday will see some lower level importance news coming out of the euro zone: German Unemployment Change and Consumer Confidence. But the big ones will be out of the U.S. with Core Durable Goods and Unemployment Claims both coming out at 8:30 am. Thursday’s have been some of the most active days we’ve seen so definitely still pay those reports some attention.

Friday at 5:00 am we’ll see CPI y/y and Core CPI y/y coming out of the euro zone. Forecasts and actual figures have been very close on both of these reports since November, so I would only watch for a big difference in numbers to occur in order to see these reports have any significant impact.

Friday at 10:00 am will be U.S. Existing Home Sales. With the U.S. tax credit coming to an end, look for some potential big differences in the forecasts and the actual numbers on this report as well.

Understanding the economic calendar is central to being able to conduct fundamental analysis. Here’s an example of the calendar that is located on this website.

Since the market reacts to the most recent economic news events it is crucial that you begin each week of trading by taking a look at the upcoming news events for that week. As you look at the calendar you will see scheduled times of upcoming events as well as previous figures and forecasts for future ones. But the most basic thing you should take note of would be the impact of the news event symbolized in the above image as yellow, orange, and red symbols. Basically the red ones are the ones you watch for, the rest are less likely to move the markets in a major way although they can reinforce the bigger picture. The biggest mistake new traders make is not doing this and getting stopped out of a trade when a news event hits the airwaves that was predicted all along.

Things to watch out for with economic news.

1) The biggest news events: interest rate decisions, employment data, and GDP. But you should always check the significance indicator located by each news event since there are too many to mention for the purpose of this article.

2) Be aware that the forecast number is not always accurate, sometimes its WAY off! So lets say you have been following a huge uptrend with the Euro and you check in on the upcoming news events of the week and see that forecasts look great and so you continue to buy into the EUR/USD. If the real numbers come out worse than the forecast ones and you aren’t paying attention to the release, the uptrend that was once your grave train has now become a thing of the past. Bottom line is be aware of not only forecast numbers but actual ones as well. You can get these numbers as they’re released by visiting the economic calendar right after the event; actual data gets posted as soon as its available.

3) Sometimes the reaction to the event is not what you would expect. Trying to just trade off of the news events that are known to be big market movers is risky business and I would not advise doing so. It’s actually smarter to wait at least an hour after a news event before jumping into the market. This is due to many complicated factors that no retail trader can ever predict. Also the effect that a news event has on liquidity, the ability to process buy and sell orders immediately, is the biggest pitfall to trading the news. Brokers are not required to fill your orders exactly as they were quoted to you during news events and this is usually stated in their terms of service agreements. What that translates into is you could place an order at 1.5000 then see it actually went through at 1.5015, this is what is referred to as slippage and it hurts, especially if the high volatility that big news events create turns against you. When there’s more activity in one direction than normal the price action can skyrocket, so long story short don’t trade the news. If you truly want to still try and trade as close to the news release as possible I highly recommend reading my post regarding trading the news here.

4) Lastly, fundamental analysis is one part of predicting market trends, so you may find that sometimes the forex market does the opposite of what it should be doing. This is because technical analysis and psychology of the markets plays a large part in what takes place as well. As you become more expereinced in your trading history you’ll find its easier to read what’s taking place when this happens. But one short and simple rule to take away from this lesson would be this: If fundamentals and technicals agree, go for it with certainty. If fundamentals and technicals don’t agree, stick to the technicals but be cautious.

Non-Farm Payrolls gets released the first Friday of every month by the Bureau of Labor Statistics (BLS) of the US department of Labor. It is a compilation of a series of surveys conducted by the BLS which is an independent fact finding body hired by the federal government to collect, process, analyze, and disseminate crucial economic data to the public. The key thing to understand regarding the service they perform is that they maintain a high degree of accuracy, quality, and impartiality in both the subject matter and presentation (straight facts, no opinions).

Now there are a lot of ways that this data gets used to fundamentally analyze the US economy. Some examples are: knowing how many people have become unemployed, their ages, gender, race, how they lost their job, type of jobs lost, etc. This information gets digested by the big thinkers in government so that they can determine policy directions to influence the future course of the economy. What you as a trader should worry about are the numbers regarding monthly estimates of employment, hours, and earnings for the nation, states, and major cities.

Now keep in mind that a month to month analysis of this report is not necessarily relevant at face value, since you have to take into account seasonal variations that occur. Year after year there tends to be predictable flucuations around the holidays, vacations, and harvest time that get taken into account using a statistical procedure, but that’s just getting too deep into it. Just keep that in mind as you do your monthly checkup on this data.

What this data means to you as a trader is that it can predict things like inflation or deflation which effects interest rates and other Federal economic policies that in turn effect the forex markets drastically. Taking this report and trying to analyze it on your own would be an insurmountable chore, so I suggest seeking a breakdown of the findings from a trusted source. I also share crucial elements of this report here.