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Daily EUR/USD, GBP/USD Analysis May 2nd 2014


I had a sneaking suspicion the optimism I had that we would be seeing the average daily range start to widen back to normal was a bit premature. Sure enough they showed yet again that they really don’t have a plan moving forward on direction for the EUR/USD. Yesterdays 26 pip range and what looks now to be a fake out break tells me they have absolutely no conviction on direction and we are likely to see this 120 pip range hold until there is something showing that one currency is truly stronger or weaker than the other to get them to break and make a decent. No worries I can deal with that.

Today I will be open for direction but all things considered the probability for a short is higher. With the fake out to the highs and other significant daily levels just above, this range holding for the better part of a month they are likely to move back down and potentially test the lows. It is Non Farm Friday so it may be slow going but since the European banks were closed yesterday they might need to make a move today to make up for being down for a day.

The best level I see for the short is the overall highs at 1.3888 but the daily 1.3878 is still valid. I would prefer to see them dip down and hold below yesterdays lows during the London session before I consider the lower daily level but if the set up is clear and I can get my stop well above the highs I will take it at 1.3878. Otherwise I am open for the long at the 200 EMA around 1.3841. If they are going to break it to the upside that has good probability for the turn. Having said that I do prefer the short since they cant seem to break out of the range.

EU 1hr chart

The GBP/USD had the same sort of potential fake out but does seem to be the pair that would have more potential to break to the upside. It did finally have a daily close above the 1.6876 monthly high from November 2009. It was only 10 pips above so the conviction is in question but is there. We will have to wait and see what they do during London to get a better idea. The way the fundamentals are turning out my thoughts are they will break this higher but going beyond the 2009 yearly highs wont be in the picture any time soon. At that point the probability of them running a range until they see what the Fed will be doing when the US data gets worse (like its already starting with GDP) and they have to make the QE or not decision again.

The level I would prefer any long from is 1.6868 with a nice stop run below. The may push it to the lower levels and if they do the set up will need to be clear since if they don’t test down and break during the London session the probability of a Friday range bound day gets higher. Otherwise if they just run stops to the Asian lows pulling in the breakout traders I will be open for the short at1.6900 level but would prefer seeing the stop run to the highs where I can wait for a good entry while watching for the conviction to push up.

GU 1hr chart

Forex News Today

The calendar has Italian, French, German and Euro Zone Manufacturing PMI data during the London session. With most expected to be flat or slightly improve in Italy. With all decently above the 50 level there will need to be a big miss in order to start a move before NFP is released later. Even if they do start a move off that data it will likely be retraced before so they can push traders out for the NonFarm spike.

NFP is expected at 210k which does seem kind of low to me. The US needs well over 300k jobs produced each month to even consider a potential recovery taking place. Anything below barely covers the new workers coming in the job market each month. The way I see it is it will take a much larger miss to the upside to create any sustained USD strength while a smaller move down will give them reason to break the highs on both EU and GU. Lastly the Unemployment rate is expected to drop to 6.6% but with it being a non event due to the way it don’t really show the jobless along with the Fed not really using it as a goal for the QE program, it most likely wont do much but get the news algos going nuts on a miss.

Have a great weekend


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