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Daily EUR/USD, GBP/USD, Gold Analysis June 6, 2014

As I look at the move on the EUR/USD this morning my first thought is one of those “what the ___” moments. Until of course I go back and look at what Draghi did and said during the press conference. Since he did do mostly as I expected with rates and didn’t quite go as low on the main interest rate he did go negative on deposit rates. As I was talking about in the live London session I told members the EU would likely spike upward before a drop in that scenario and as I checked the charts before I went to bed that was exactly what happened. The question this morning is why the heck did it retrace all that move and then some to close on the highs of the day? Well the simple answer is the old bad news is good scenario. In other words not only did he decide to stop the sterilization of the current purchases (therefor leaving more money in the system) he also more or less promised an LTRO package in the near future and used language he hasn’t before about the ABS purchases (full blown QE) showing he is much closer to that, with Germanys permission of course.

All things combined doesn’t say that this should be good for the Euro but it is great for risk. The Euro is a risk related currency so it will benefit. Not necessarily what Draghi wanted I am sure. Of course I did have to go back and look at exactly what he did and said but I really needed to look no further than the new highs on the S&P500 to know that the big boys see this as more money coming in the market for them to chase yield and the best place to do that are US equities right now. So there we have it, the big boys are going to force his hand if he really wants to weaken the Euro and will take the full blown QE in order to see it. I actually had a good laugh once I put all this together this morning.

As for today, since it is NFP Friday the Euro could go either direction. I would normally go with the conviction to the upside and expect the next push up today but with NFP today the higher probability is it wont do much of anything until the release. With the bar set low expecting 218K jobs created it has a higher chance to surprise to the upside while the Unemployment Rate is expected to rise. Therefore if NFP is better than expected the Unemployment rate may just offset any NFP rise better than expectations.

Having said all that I will be open on direction today. The best level to short from is the daily high it tested yesterday but with it being so close to current price I will be happier to see them push it down during Asia and manipulate there during the London session. Otherwise the best level for a long is 1.3627 where the hourly 200 has confluence but the two levels just above are valid as well. The best way to see that they will likely turn at one of those will be to have hourly conviction above during the London session first.

EU 1hr chart

The GBP/USD had the same sort of move but with less of the whip to the downside due to the EUR/GBP weakening more during the news release yesterday. This pair has a better chance for the next push up with the two intraday pushes and a daily close above the highs from May 28th. However NFP could put a wrench into the works. I will still have the bias for the next push up but just be cautious if I don’t have my stop to break even before the NFP release. The best level for the long right now is 1.6790 at the four hour 200 but they may dip it as low as 1.6775 before they turn as well. Considering this on the long term scale it is only the first push I will be open for the short from yesterdays highs but will prefer to either see they wont let it pass or the playing of the breakout traders during London before testing the highs.

GU 1hr chart


Gold made the move I would have expected as the ECB gets closer to full print mode. This push up will most likely continue over the short term but I do expect the eventual smack down before it starts the melt up Max Keiser talked about in the episode I posted in the blog yesterday. There are the couple of levels I will be looking at to go long today at 1250.60 and 1247.69 but the range where I am rather sure they will defend for another push up is between 1245 and 1243.50

Gold 1hr chart

Forex News Today

The only events that have a decent chance to get some manipulation moves before the NFP during the US session are German Industrial Production and Trade Balance early as Frankfurt opens today. If these disappoint it will be another couple reasons for Germany to get on the print band wagon. The big reason is any QE program does hinge on Germany giving the green light to the ECB. Therefore any time we see more bad data from Germany we will most likely see the Euro strengthen.

Yes I know that don’t make sense but since every time they mention Asset purchase or QE they always say “within the ECB mandate” which means they really cant go full blown print mode like the US or UK therefore having the same effect on the Euro in weakening it due to dilution of the currency cant happen. Its against the ECB mandate so they will more than likely do a larger longer term LTRO package first. In that case it will have the opposite effect since its more of a back door print that hides the currency depreciation therefor actually having the opposite effect of what Draghi wants. I cant help but have a little chuckle ha ha.

Have a great weekend


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