Daily Analysis of EUR/USD, GBP/USD August 22, 2013
The EUR/USD today is showing the big boys think Ben will actually be doing the taper. Equities agree even though they did put up a good fight yesterday. At this point I am still on the fence. I remember writing a commentary explaining why Ben is in between a rock and a hard place with all the printing and long term interest rates rising while the punch bowl continues to be supplied with 85 billion a month. If interest rates will keep on rising as I expect Ben will have no choice but to taper some but my thoughts are that this will depend on how much of a correction in equities we see. If they drop too far too quick the taper will be less than expected or not at all.
Having said that it will probably take a drop below the previous daily lows on the S&P at 1552 to keep the taper off the table. If they can manage to hold it up above there with rhetoric from various Fed members over the coming weeks. If its the taper that causes the drop below that level it wont be so bad but if just the fear of a taper by 20 billion or so per month causes the run below that level then the chance for the tapering goes down. I should also mention that Ben has several other issues to ponder while deciding what he will do. I wouldn’t want to be in his shoes but then again I surely wouldn’t have done what he did. More than likely I would have been fired in the beginning when I let all the big banks go down in flames.
Looking at price action alone we have a false push up Tuesday and now an intraday push down. I will be expecting a continuation today while keeping an open mind for a long with a stop run to yesterdays lows. The problem is that there are 2 daily levels just below that they may test and do a stop run at also so it will need to be clear. Since we already have a 27 pip Asian range the best level to short from is around 1.3360 with a test there or just above considering we do have broken daily levels around 1.3380. If it can make a lower push during the Asian session this morning to widen out the Asian range a bit I will consider the lower levels more as not as aggressive for the short.
The GBP/USD is in a similar situation having the three short intraday pushes up with the reversal due to the FOMC yesterday. Sure it looks kind of pretty in hindsight but trading that would have been dangerous to say the least just before the big release. Since we already have a 58 pip Asian range this morning the chance they will push it back to the Asian highs is low if we don’t see it lave the Asian box closer to the highs or at least above the mid range. With the conviction we have seen so far during Asia (which is rare) the best levels will be at 1.5636 or as high as 1.5652. The latter level is just below the Asian highs but is more significant due to it being a well respected level in the past. If they cant manage to push it up higher that 1.5627 this morning and we see price leave the Asian box at the lows I will consider the short there but I expect they will try and push some weak holders out of the market first and get above there before we see any trapping formations.
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Forex News Today
The scheduled releases during the London session today consist of Manufacturing PMI figures from France, Germany and the Euro Zone. Expectations are for rises on all of them while France popping above the 50 expansion level. If these manage to come out as expected or miss to the upside it should be Euro positive but with the potential Bernanke taper on the mind they may just get over looked barring a large miss and even then shouldn’t create a sustained move but more of a reason to manipulate.
The US has Thursday Unemployment Claims expected to rise by 10K. Since Unemployment data is one of those several issues Ben has to ponder if this misses to the upside substantially there may be thoughts of no taper. If this can manage a drop below last months figures it will be good for the taper and the EUR/USD will weaken. Later in the day Fed Member Fisher speaks along with the Treasury Secretary Lew over an hour later. Normally I wouldn’t expect much from either of these guys but be careful anyway because if they change view in a dramatic way it will move the markets a bit.
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