There's a lot going on this morning in the forex. For starters, the non-farm payrolls number for June showed that the U.S. economy continued to lose jobs. The U.S. economy lost 62,000 jobs in June; also, April and May payrolls were revised lower.

(Non farm payrolls, normally announced on Fridays, were released one day early due to the U.S. holiday tomorrow.)

On balance, June's non-farm payrolls number was terrible. But the U.S. dollar is up across the board this morning thanks to the European Central Bank (ECB).

I thought that Jean Claude Trichet, head of the ECB, would back off of his hawkish rhetoric. I outlined as much in a post yesterday, which you can scroll down to read or click here.

The ECB hiked rates this morning, as expected, to 4.25%. But Trichet eased his hawkish tone during the press conference. Specifically, the ECB omitted two phrases that it normally uses to communicate its intentions:

"heightended alertness" and "strong vigilance"

Trichet was asked by a reporter why he left out these two phrases. Trichet's response essentially confirmed that the ECB was on hold. That's when the EUR/USD started selling off in a big way. Below is a 1 minute chart of the EUR/USD, showing the start of the press conference and the following sell-off.

EUR/USD 1 Minute Chart Following ECB Press Conference

I made the comment yesterday that the ECB meeting is actionable because of the press conference. You can see what I meant in the chart above. The EUR/USD dropped by 150 pips over the course of 30 minutes. That's a big move in a short space of time. It's a continuous move, too. It's not like a 150 pips were covered in the space of 1 minute. There was plenty of time to get into a trade following Trichet's comments.

Hopefully you were following along and caught some of the move. If not, hopefully you'll be following along and watching the next ECB press conference. I know it's early for some of our U.S. clients and late for some of our clients in Asia, but it's worth it because of the easy trades that generally accompany ECB meetings.

I'll be away on holiday tomorrow and won't be posting to the blog. We'll pick-up next week on the implications of today's reversal in the euro and U.S. dollar. In the meantime, look for some follow-through of today's move overnight and expect trading to quiet down as Europe closes due to the holiday in the U.S.

The ECB and Jean Claude Trichet, head of the bank, will take center stage Thursday morning. There's a lot of anticipation going into this meeting and it might prove to be actionable for a short-term trade.

Trichet has been talking pretty tough on inflation this year and has said that he would raise rates. The rhetoric isn't entirely surprising; if you've been around the forex long enough, you know that the ECB usually says more than it actually does.

The sole mandate of the ECB is to battle inflation, so again it's not entirely unexpected to hear its governors talk tough on inflation this year with food and energy prices soaring.

But the problem I have with the ECB's tough talk is that it's concurrent to extreme weakness in European markets. For example, Germany's DAX is down by more than 21% YTD; France's CAC is down more than 23% YTD. On average, the European markets are down a lot more than U.S. markets. That tells me the European economies are in trouble.

How in the world can the ECB hike rates in such an environment?

I just don't see how the ECB can hike rates and I sense a lot of other forex traders are reaching the same conclusion. Take a look at the Commitments of Traders (COT) data for the Euro futures contract. It shows that large speculators have, over the last several months, liquidated their huge net long position in favor of a net neutral stance. (Charts appear courtesy of TimingCharts.com.)

EUR/USD Daily Chart and Commitments of Traders (COT) Data

My sense is that the forex market is just waiting for a catalyst to sell the euro. This catalyst might be the ECB backing off its hawkish stance and adopting a neutral bias.

Of course it's a BIG IF, but you might listen for such a shift in policy Thursday morning. The great thing about the ECB is that it holds a press conference after each meeting. The press conference is broadcast through the ECB's web site, so anyone around the world can watch and listen. This makes the ECB's meetings actionable, much more so than the Federal Reserve's meetings.

I strongly encourage you to watch the press conference Thursday morning. You can find it here:

European Central Bank

(Look at the right half of page, where it says: Webcast of ECB press conference on 3 July  2008.)

The Australian dollar, or Aussie, has been on a good run over the last couple of weeks. The Aussie's been climbing higher thanks to the rallies in metals and in anticipation of today's Reserve Bank of Australia (RBA) meeting.

A couple of month's ago, the RBA was talking pretty tough on inflation and was expected to hike rates later this year. (Benchmark interest rates in Australia are already quite high at 7.25%.) But the RBA squashed the notion of hiking interest rates anytime soon. You can read a full review of the RBA's announcement via Bloomberg:

Australian Dollar Falls After RBA Meeting

I wouldn't be surprised to see the AUD/USD pullback even further after today's RBA guidance. The pair rolled over from horizontal resistance at 0.9640 yesterday and then broke below its short-term support line today.

The point and figure chart won't come into play unless the AUD/USD drops down to 0.9300, which would put the pair on a sell signal. I don't think that will happen over the next month or two because metals prices, especially gold, are too strong.

In fact, if metals prices keep going the way they are, then I would be inclined to look to buy the AUD/USD in a couple of weeks and position for a run to parity (1.0000).

AUD/USD (Aussie) Daily Chart