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Daily Forex EUR/USD, GBP/USD, EUR/GBP Commentary May 11, 2012

The EUR/USD held its bottoming formation yesterday however it has broke it this morning during the Asian session and looks set to make a further push down. That doesnt surprise me considering the unraveling that is happening in Europe right now. We may even see the market run off today without providing me with a clean low risk entry. I will be looking to see a pop up and attempt to do a stop run to the upside during the London session for the short. There is a possibility of some week ending flows as traders take profit on shorts for the week and this will be a good time for the Smart Money to manipulate and make the further push to take out weak holders. The candle patterns will tell the story.

The GBP/USD has been doing somewhat of what I expected with holding its own as the Euro falls but I do still expect it to be dragged down as the Euro falls faster. Over the last 2 days we have seen 2 solid pushes up in a rather choppy market considering intraday levels. The safest way to look at this pair is to treat it as the chop it is and look for the manipulation during the London session. I still have a small downside bias looking at the chart from the fundamental perspective and considering that the down moves we see on the chart are the slower more persistent moves. There is a good chance for it to just continue the chop here so the safer trades will be from the extremes. (yesterdays high or low)

The EUR/GBP provided us a nice confluence trade during the London live room session for 30 pips as you can see below. neither the EUR/USD nor the GBP/USD gave me what I was looking for and the EUR/GBP was the pair to trade just as it was on May 9th. My bias for this pair is also short as the Euro gets weaker and the same reason why the GBP/USD has been chopping while the Euro falls. This is not one of my main pairs to trade but will give opportunities when the others dont. This trade will be covered in more detail in the recent trade section of the site.

Forex News Today

The scheduled news releases are light for this Friday. We start with  German Final CPI which is a low impact event and not expected to change. Then PPI Input from the UK and is expected to drop into negative territory. If it does then it may lead them to think they can afford more easing but I would think that they will want to see other inflation data to agree before they do but this may have a positive effect on the GBP for some manipulation.

For the US there is  PPI and Core PPI figures and are expected to show that US producers are not seeing any inflation at the moment. Then later is the Prelim UoM Consumer Sentiment. This will most likely be looked at close since it has to do with how consumers feel about the economy and with the US being a consumption based economy any sustained recovery will be due to them getting out and buying again. Since the release is late in the London trading day it may not have a large impact unless it does surprise in a big way.

Getting worse before it gets better

At this point my friends it looks like the proverbial pimple is about to pop or I guess a better analogy would be a volcano ready to blow. here are some excerpts from some of the articles I have been seeing this morning and I have to say things dont look good.

From the Telegraph :

 Chinese sovereign wealth fund stops buying European government debt

Amid resurgent political and financial crisis in Spain and Greece, Gao Ziqing, head of the China Investment Corporation (CIC), said the $440bn (£273bn) fund was “looking at opportunities in Europe” but added: “We don’t want to buy any government bonds.”

Eurozone leaders have tried to attract investors from Asia to help mop up excess sovereign debt. Both China and Japan have been supportive in the past, in part because Europe is one of their biggest export markets.

This from the Washington Post

Spanish lenders in talks over ‘bad bank’ plan, government agency confirms recession

As their losses from mortgages grow, Spanish banks have begun discussions about creating a separate entity — a “bad bank” — to take on these assets and relieve pressure on the financial sector.

The urgency of the issue was highlighted by ratings agency Standard & Poor’s, which downgraded the debt of 11 Spanish banks — including Banco Santander SA, the eurozone’s largest by market capitalization. S&P cited concerns about the effects of Spain’s shrinking economy and warned that five other banks are at risk of a similar downgrade.

And here is the real kicker on JP Morgan from Zero Hedge

The “World’s Largest Prop Trading Desk” Just Went Bust

A month ago we warned that JPM’s CIO office is nothing short of the world’s largest prop trading desk. Not only were we right, but what just transpired is just shy of our worst possible prediction. At the end of the day, the real question is why did JPM put in so much money at risk in a prop trade because we can dispense with the bullshit that his was a hedge, right? Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least “net” is not “gross” and we know, just know, that the SEC will get involved and make sure something like this never happens again.

The house of cards is losing its foundation guys. We can only hope this time it creates some incentive to get the politicians to remove their heads from the banker backsides. Time will tell.

Happy Trading


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