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Daily EUR/USD, GBP/USD Forex Market Commentary June 7, 2012

We did manage to get the push up we expected on the EUR/USD and GBP/USD yesterday. However the entries were not clear enough for me to take them personally. I did manage to take 45 pips from a GBP/USD short but unfortunately it was after a 25 pip hit as I took it a bit early and was stopped by less than a pip. I was confident of direction so I reentered and made 20 pips on the day. Thats whats nice about having a good risk/reward profile.

Today the EUR/USD is a bit confusing as the clearer pushes I see are 2 once it broke through the 3rd push chop at the lows but what gets me is there is three 90+ pip pushes in that set. As you can see on the chart below that I have them labeled. In cases such as this we must not build a strong bias in either direction. Today will be the same scenario as yesterday and the manipulation will be what I look for the most with a slight bias to the upside expecting the third push up. For the long I would like to see the manipulation down during the London session hitting our manipulation zone or a stop run to yesterdays high for the short.

The GBP/USD is clearer considering the pushes with the first push above the chop below. Having said that I have a feeling I will be trading against that today considering the news that is scheduled and the chance of the UK adding to their Asset Purchase Facility. Of course I will be looking to see a clear entry before hand. The fact is I will be rather picky for my entries today and would not be surprised if I dont get a trade at all. I am definately not going to force a trade with the current situation at hand.

Forex News Today

The scheduled releases are light today but we have some major ones to watch starting with Halifax HPI and Services PMI from the UK. The housing data I dont expect too much movement from but the Services figures could provide a good opportunity for manipulation as it is expected to drop. Since the UK economy is service based this slowing will add to the probability of more asset purchases if it drops further than expected. Later in the day they will also have the BOE Official Rate, Asset Purchase Facility and Statement release. The big one here being the Asset Purchases. The consensus is they will leave it unchanged. However there has been much chatter that there is a possibility they will surprise and add to it. If they do the GBP will drop and if not traders will be looking to the statement to get any hints they will be adding in the future. As long as they dont add to it I expect they will hint to future additions especially if UK data gets worse.

The Euro Zone has a Spanish and French 10yr bond auction. The big one of course being from Spain. With theeir finance minister saying the other day that Spain is effectively locked out of the bond markets I dont expect this to go well unless the ECB steps in which seems unlikely but it wouldnt be the first or last time I have been wrong about such things.

The US has Unemployment Claims and is expected to be roughly the same as last week. Even if this does have a deviation I expect reaction will be some what muted since Ben Bernanke will be on the hot seat testifying to Congress an hour and a half later. The market will be looking for the hints of commitment to another QE program.

At this point my opinion is they will be disappointed. I am confident he will say in the speech that the Fed has plenty of tricks left up their sleeve and ready to act as necessary but its the Q&A session that follows that will be interesting. Republicans are going to put his feet to the fire while Democrats give him the thumbs up hahaha. However I believe the  disappointment will be when they ask what good the last 3 tricks the Fed pulled actually did. The fact is the only ones who benefited were the banks and stock investors. The people on the street were left hung out to dry and the rallies in stocks were smaller and smaller each time they acted. The 65K question is what good will more QE do? My thinking is another rally that lasts shorter previous ones. Chances are they will do it anyway. Just maybe not as quick as the market expects. Time will tell.

Loving That Rally

That almost 300 tick rally in equities surprised the heck out of me. There is only one thing I can think of that could spark such a move  and yes its the pricing in of another round of QE from the Fed. However even Morgan Stanley dont have much faith in a sustained rally to the tune of the last few rallies when Central banks acted. Below is a couple excerpts from an article expressing their opinions.

   Global macro weakness seems set to trigger another round of global monetary easing. Prior aggressive policy action has coincided with risk asset rallies. However, those policy actions also corresponded with improving macro data, which we think was the critical factor. There will be a Pavlovian reaction from markets if we get further easing, particularly QE3 from the Fed. But if macro stays weak, expect any QE3 rally to last hours or days, not weeks or months.

Growth concerns, not systemic risk, are now unsettling markets. Investors, rightly in our view, are increasingly skeptical about the ability of unconventional policy to boost growth in developed economies. Certainly, it seems unlikely to counteract fiscal tightening, now under way in Europe and UK, and in prospect in the US. Further easing may trigger an initial market response – there are too many investors who think it works to think otherwise. But without macro improvement, that risk asset rally will be short-lived, in our view.

Interesting indeed

I just cant help but post these videos from Charles Biderman. I hope you enjoy them as much as I do. He never paints a rosy picture but I like the way he tells it like it is with a bit of humor. Here he explains the real situation with Spain and its banks.

Happy Trading



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1 Comment

  1. Nicholas Kellagher
    Nicholas Kellagher June 07, 06:55

    Hi Chad

    Like the commentary – yes its hard to see which way these guys will turn – just keep pumping the balloon up I suppose.

    Reply to this comment

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