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Analysis of EUR/USD, GBP/USD June 14, 2013

Today we have what looks like a confused market with the 100+ pip down move fully retraced in a single day but no real commitment to break the highs created during the Frankie fake out yesterday. direction is blurry at best on the EUR/USD. I do see a decent toping formation that does make me thing they will make another attempt at the down move but I will need some clear price action to take the trade. We do have some manipulation patterns forming here in the early Asian session which may give us an entry with a test and more manipulation during the London session later.

The level I feel has the highest probability  is 1.3378 at the highs of the US end of day. We may not see the stop run due to the patterns forming so if we do see more of them form at the London open I will want an entry as close to 1.3378 as possible since there is always the possibility of the stop run above it or even 1.3389. The possibility for the long is there mainly due to the Fed mouthpiece Hilsenrath yesterday which I will talk about later and the levels to look for the manipulation are 1.3344 and 1.3316. If we see the push down and they wont let it pass, (the 1.3316 level most likely) then taking the long there on a good set up and entry has a good chance of producing a 50 pip trade.  

EUR/USD 1hr chart june 14, 2013

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The GBP/USD is in a similar situation with either an extended push or the third awaiting the reversal. My preference is the latter considering the push Wednesday was a meager 68 pips. I will have a slight bias for the short here as we are looking at an even nicer topping formation. the first place to look for the short is the 1.5721 level but I will be watching closely as the potential for a stop run above the over all highs is there also. we do have the daily level support kicking in at the 1.5700 psych level and as long as this tight range holds during Asia I would like to see them play the breakout traders on both sides of the range in that case.

Again there is also the potential for a long but I will want to see they wont let price pass 1.5668 or 1.6543 in order to take it.

GBP/USD 1hr chart June 14, 2013

Forex News Today

Todays Economic calendar is light with only a few medium impact events to keep an eye on. the Euro Zone has CPI figures which will most likely be a non event, along with unemployment data and who is surprised by the steady increase in that these days.

The US has TIC Long term Purchases. this could dramatically decrease considering the latest US bond auctions not going very well but I doubt it will move markets much. Later is the UoM Consumer Sentiment data and as we learned yesterday no matter how we look at it we will be late to the party  but it may be worth trading the manipulation against a spike a couple minutes before the release. Just watch for a test into manipulation and don’t trade it if its a big miss

Are We There Yet?

I remember posting in a commentary last week that we may have quite some time before the house of cards we call the financial markets come tumbling down. now I am not so sure. It is surely possible but it would seem that the signs are getting clearer that we are almost there.

As with everything there will be a catalyst that really gets things going to a point where all faith in the central planners is gone and the markets react. in this case its not a real market as we all know but a side show created but the central banks to try and make us think all is well while even though they wont admit it they know it as well. I wont say it was impossible for them to get things under control but as I have said many times we were due for a correction they wouldn’t let happen and here we are.

The catalyst I mention I believe will be the bond markets since they are what has been manipulated the most in trying to keep interest rates down without lowering rates since there is no room to lower them. This idea goes back to the simple laws of nature in that for every action there is an opposite and equal reaction, energy is neither created nor destroyed it merely changes shape etc. We all know this is simple grade school learning. There is nothing different here other than the confusion of what the catalyst might be. Well we are getting the answer these days starting with the Banzai tactics of Japan and now things starting to crumble in the US bond markets.

Yesterday Hilsenrath (the Fed mouthpiece) tried to do some verbal intervention and put out an article explaining that the Fed is not going to taper and it wont be predictable if they do because if they slow purchases they could easily ramp them up the next week or month. Here are a couple excerpts of note. With my more common sense analogy added in bold letters.

Prices have been dropping in Eurodollar and fed-funds futures markets, for example, where investors make bets on future short-term interest rates. Those declines suggest investors expect higher short-term rates by late 2014. In the fed-funds futures market, for example, the expected fed funds rate in December 2014 is 0.35%. In the Eurodollar market, investors see 3-month rates borrowing rates rising to 0.67% by December 2014.

A similar message is coming from swaps markets, where the market is pricing in an average 0.37% fed funds rate between June 2014 and May 2015, according to BNP Paribas. That is up from an expected rate of 0.17% in early May.

The fed funds rate — which is an interbank borrowing rate — was 0.08% yesterday.

These movements aren’t huge and could quickly reverse, but they merit attention.

There are three possible explanations for the movements in expected short-term rates:

1) Money markets are out of whack for technical (manipulation) reasons. Really ya think? 2) The market is pricing in a stronger economy, which it in turn expects to prompt Fed rate increases. Stronger Economy? What data supports that? 3) Investors are starting to doubt the Fed’s commitment (ability)to keep short-term rates down

Many market participants say it is the latter. “The market is saying, ‘The fundamental economic outlook really hasn’t changed much, but we are getting more worried about Fed policy,’” says Jan Hatzius, chief economist at Goldman Sachs. Now that sums it up in a nutshell.

So back to the main question of are we here yet? Well the answer is the same as what my mother used to tell me as a child when we were on our way to grandmas house and we asked several times on the 3 hour drive. “Are we there yet” and mom would tell us each and every time expressing more anger each time. ” WE WILL GET THERE WHEN WE GET THERE!!” However as we grew up, even though we learned the signs of getting closer to grandmas we still asked just to mess with mom. 🙂

Anyway I digress. In our current situation we are seeing the signs unfold starting with the volatility in Japanese bonds and stocks. The real catalyst will be when that spills to the US bond markets which has started but still will take some time to create the equal and opposite reaction I spoke of earlier. How long? I really don’t know since we do know that the last resort will be the Fed going on a Banzai attack just like the BOJ before its all said and done. Having said that as I look at the corner we are coming around now, I am pretty sure I see grandmas driveway in the distance.

Have a great weekend


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  1. Nicholas Kellagher
    Nicholas Kellagher June 14, 07:13

    I agree Chad – but there are a load of people who have a vested interest in this party carrying on.
    The bond market is likely to be the market that blows time, but bond holders dont want sovereign defaults either, so they will do everything they can to keep the show on the road. The irony is that there are plenty of good quality corporate bonds out there, its just some sovereign bonds that are at risk

    Reply to this comment
    • Chad
      Chad June 14, 08:04

      Very true Nicholas and those vested interests you mention is what has kept the party alive so far. This will drag on to some degree while the print fest continues and they wont be able to pull back only add in the future. However it will be the beginning and yes they will do everything they can along with sacrifice the people to try and maintain the status quo kind of like they are already doing 🙂

      Guessing the timing on when it will happen is not worth it so we will all just play the hands we are dealt.

      Have a great weekend buddy


      Reply to this comment

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