Yesterday we had a nice entry short on the EUR/USD in the live training room but it seems like the Smart Money had a change of heart during the US session and I was stopped out at break even. As I try to find any sort of reasoning behind the move this morning I just dont see it. My first guess was that the ECB was buying Spanish and Italian debt but I cant find the evidence. The US equities did see a decent push up so the risk on scenario may have been playing out also. This does go to show that the market can be a bit nutty sometimes and the SM playing tricks is most likely the deal here LOL
Looking at the charts today the hourly Euro has seen what I would consider 3 pushes to the upside but I consider these medium term levels and half expect it to reverse after a stop run to the highs and this does concur with my fundamental bias to the downside. Having said that I will be more comfortable trading the Yen crosses today if that makes any sense LOL. I will explain more on that here when I cover them shortly. Any trade I may take on the Euro will be after a clear stop run to the highs of either Monday or Friday of last week. The higher the better. Otherwise I havent totally ruled out a long position either and some clear manipulation down to the 4hr 200EMA and some nice confluence and I would be happy with a long position.
The GBP/USD is in a similar situation but having different issues. Seeing its in a long term technical up trend the levels are not clear and yesterday it went up and tested some major daily resistance at the 1.6164 level and has a clear topping formation going on. I half expect this pair to still head north but a reversal here is not out of the question either. If i only look back 4 days I can see 3 pushes up however just adding a couple more days to the chart there are even more. In either case I will need some heavy confluence to trade this pair.
The GBP/JPY looks the most interesting to me today. Mainly because the way the 1hr chart looks it has only seen 2 pushes from the lows yesterday and the fundamental picture for the JPY is weakness. I mentioned in the April 24th commentary that the BOJ has all but promised more printing of Yen and later in the day somebody did more or less fulfill the promise and said they were looking to print 5-10 trillion Yen at the next BOJ meeting this Friday. At this point I am only concerned about getting an entry today with out having to chase it.
Forex News Today
The news is actually going to be eventful today. Starting with the ECB chief Draghi speech. I would expect more of the same from him with austerity and how well things are going LOL. Then next on tap is GDP figures from the UK. With a downward revision from last month this does have a chance to disappoint. If it does we might see the drop in the GBP mainly because the market will be thinking the Asset Purchasing may ramp up at the next MPC meeting but if it does surprise to the upside the push through the daily resistance has a better chance than if this release comes out negative. Also from the UK there is CBI Industrial Order Expectations and if this is good it will show improvement in the UK but I have my doubts as it is still in negative territory and will need a large deviation to get back positive. There is also a 30yr German bond auction which should be a non event with their bonds.being the most sought in the EZ.
Later from the US we have Core Durable Goods Orders, Durable Goods Orders and Crude Oil Inventories however the biggie for the day is the Fed Fund Rate and Press Conference. I am rather sure the market will be looking at this for more clues to QE3 and any change in the rhetoric to show just how close we are to seeing it. I have my doubts there will be much difference since we are not past the presidential election and there hasnt been a steep drop in stocks to warrant such a move so even though the market will likely be choppy I am not thinking we will see a large move from this but it wouldnt be the first time I was wrong about what the Fed has up its sleeve LOL
I will leave you with a few excerpts from my favorite gloom and doomer Graham Summers with a little more detail on the article from The Telegraph on how the German people are just about to see the writing on the wall and how the Bundesbank has racked up a massive amount of back door debt that will leave the people in the poor house in the future. And a few possibilities of how this may play out in the future.
German tempers boil over back-door euro rescues
Professor Hans-Werner Sinn, head of Germany’s IFO Institute, said German taxpayers are facing a dangerous rise in credit risk from a plethora of bail-out schemes. “The euro-system is near explosion,” he told Austria’s Economics Academy on Thursday.
Dr Sinn said Germany is on the hook for much of the €2.1 trillion (£1.72 trillion) in rescue measures for EMU debtors – often by the back-door – that will saddle Germans with ruinous losses one day.
”It is a horror scenario,” he said, warning that the euro system is splitting friendly countries into blocs of mutually hostile creditors and debtors, exactly the opposite of what was hoped.
Earlier this week, the Foundation for Family Business in Munich filed a criminal lawsuit against the Bundesbank, accusing the board of disguising the true scale of risk born by German citizens.
Remember, in the last six months Germany has:
1. Passed legislation that would permit Germany to leave the Euro but remain a part of the EU
2. Reinstated its Special Financial Market Stabilization Funds, (or SoFFin for short)
It is the second of these items (the reinstatement of the SoFFIN) that the western media and 99% of investors have missed entirely. In short, Germany has given the SoFFIN:
1. €400 billion to be used as guarantees for German banks.
2. €80 billion to be used for the recapitalization of German banks
3. Passed legislation that would permit German banks to dump their euro-zone government bonds if needed.
That is correct. Any German bank, if it so chooses, will have the option to dump its EU sovereign bonds into the SoFFIN during a Crisis. So in simple terms, Germany has put a €480 billion firewall around its banks thereby allowing Germany to potentially pull out of the Euro if it has to.
Now, I’m not suggesting that Merkel will suddenly opt to do pull Germany out of the Euro. Doing that would only worsen EU relationship and arouse more anti-German sentiment.
However, I wouldn’t be surprised to see Merkel start threatening this in the coming weeks as German outrage grows regarding their exposure to back-door EU bailouts. Remember, her political popularity is largely due to her appearing tough on the PIIGS. She has to regain that appearance as quickly as possible in order not to face serious political consequences.
Happy Trading guys
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