So what's the consensus on ET? Market up big last two days, Friday's are usually up, triple witching...gonna be crazy! 8:30am USD Fed Chairman Bernanke Speaks I say Fed brings red or he just continues to lie through his teeth and market tests all time highs again... Default Friday's Data/Bernanke's Speech And The $ The wealth of data to be released Friday morning is very likely to create a high level of volitility in the markets. Bernanke's speech will also be closely monitored. In order to get a clear idea of currency price direction-you'll need to take them all into consideration and then watch the reaction in bonds and equity futures. The best time to trade is when the market is thinking collectively. Becasue they are such a reliable indicator of market sentiment, movements in the 10y yeild and equity futures can be used as a leading indicator of likely currency price movement after Wall Street gets going in the morning, especially if the data points in the same direction. Wednesday was an excellent example of this. Bond yeilds dropped significantly and equity futures spiked on the good growth seen in the retail sales report. Import prices were up and while this was an inflationary indicator, it didn't affect market sentiments. Wall Street and carry trades had a strong day. There are serveral different scenarios possible for the data (and don't forget bernanke's speech). Here are a couple of ideas. Higher growth in the NY Fed coupled with higher inflation in the coreCPI will likely cause yeilds to rise and equity futures to fall. Carry trades could unwind in that situation. Lower growth and lower coreCPI will likely cause the 10y rate to fall and equity futures to rise-a good carry trade enviorment. Higher growth with lower coreCPI will also likely cause yeilds to drop and equity futures to rise. Good for carry trades. Other scenarios are possible too, but the point is to watch how the 10y and equity futures react. They're an excellent tool to use as a leading indicator of likely carry trade positioning and currency price movement because they are a direct reflection of market sentiment. Just a bit more about bonds and how they can relate to currency movment-specifically the dollar. There is always the question about why bonds are moving and who exactly may be getting in or out. For example, if foreigners, who hold a large amount of US debt, were to suddenly sell their bond holdings a sharp depreciation of the dollar could be seen even as bond prices fell and yeilds rose. The reason for that is the possibility that as foreigners cash out of bonds, they might then convert (sell) those dollars into their home currencies, driving the price of the dollar down as it's sold. This isn't likely to be the case though, because of the buying that came into the bond market as yeild on the 10y hit 5.3 this week. That was an indication that investors were seeking a safe investment at a relatively high yeild. If foreigners were doing the buying, they also must feel confident that the dollar is not going to depreciate to a large degree. This leads back to the question of why bonds sold off in the first place. One school of thought is that because US economic indicators are picking up and the Fed and Treasury remain committed to their projections of an economy returning to trend, investors got out of bonds to invest in potentially higher yeilding assets like equities. In other words, the rise of yield is a bullish indicator. Another school of thought relates to inflation expectations. Bond yeilds will rise (and prices fall) if inflation looks to be gaining. If you are an investor who is not holding the bond to maturity, you want to sell because the value of the asset you're holding (the bond) will be going down in a situation of rising inflation. The fact is that no one can say with complete certainty what exactly is behind the recent bear market in bonds. If you look at the economic indicators though, the first school of thought seems most likely. That's because equities are apparently remaining a very attractive investment. A few months ago, there was a lot of debate about whether there would be a "hard" or "soft" landing in the US economy. By all accounts, the question has likely been settled on "soft", even as problems in the housing market remain. It's likely that the landing ocurred in Q1 2007, if you missed it. Consumers are still spending and jobs are plentiful. Gas prices are not affecting major spending patterns as of yet.