Morning Analysis

The Euro has broken convincingly through an important daily trendline and the 100-day SMA, which is were we stopped last time.  The next target is the prior low at 1.40.  We seem to be back-testing the trendline.

EUR/USD Daily

I'm looking for places to add to my short position.  The Euro was getting beat up this morning, but is now staging a relief rally from deeply oversold levels.  We now have a nice channel to use as a risk point.  I'll add to my position as close to the channel boundary as I can manage and set a stop just outside the boundary. The head and shoulders pattern projects a target of just above 1.39, so that will present an attractive risk/reward.

EUR/USD Hourly 

Like the NY Fed yesterday, the Philly Fed was another disastrous miss, coming in at -7.7 on expectations of +9.  Averaging the two gives us an advance peek at the ISM number at the end of the month, and it could be very ugly.  A sub-50 reading indicates contraction and that the economy could double-dip into another recession.

Regional Fed Surveys vs. ISM Manufacturing Index

But for some reason, stocks are loving the news and are currently rallying through the downward channel on the hourly chart.

Russell 2000 Index Futures Hourly

Maybe the Fed will extend QE2!!!