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ECB Goes Full Retard Plus Some Jan. 23, 2015

Super Mario Impresses With an extra 10B Euro a Month QE Program

Mario Draghi did not disappoint yesterday at the ECB Press Conference. With the announcement of a 60B a month in bond purchases running through September 2016. They have successfully bought another two years of time to do more of the same while expecting a different result. Now we can just about guarantee that the Fed wont be raising rates with the USD soaring as well. I could say that the potential for the fireworks beginning now is high but I cant really say it could get much higher either. What struck me as really funny was the exchange between Draghi and a reported that asked about the potential for hyperinflation. Of which so many have been expecting but hasn’t materialized for the simple reason that every body and their brother is printing money along with the fact that there is clearly inflation in living necessities like food and housing not to mention stocks and high end “rich people stuff” like art.

Question: what would you say to those who are concerned that when the ECB buying up bonds, electronically printing money, whatever one calls it, is the first chapter in a story that leads inevitably towards hyperinflation. What is your response to that?

Answer: I think the best way to answer to this is have we seen lots of inflation since the QE program started? Have we seen that? And now it’s quite a few years that we started. You know, our experience since we have these press conferences goes back to a little more than three years. In these 3 years we’ve lowered interest rates, I don’t know how many times, 4 or 5 times, 6 times maybe. And each times someone was saying, this is going to be terrible expansionary, there will be inflation. We did OMP. We did the LTROs. We did TLTROs. And somehow this runaway inflation hasn’t come yet.

Now what makes this funny is that it seems to me they never ask the right question since to some degree the whole inflation story has been beat into the ground and its true not really much, that they count anyway, has come to fruition. However what I dont understand is why the very next question wasnt something to the effect of Yes sir I understand that so far there hasnt been hyperinflation but as you mention there has been the OMP, LTROs and TLTROs along with Fed QE, Chinese printing etc and we have yet to see any significant growth while other significant indicators show contraction like commodities? Why dont they ask him that?

EUR/USD Drops Below 1.1400

With the extended move on the ECB QE program they could push this either way today either making a deeper pullback or short retrace before extending to the downside. I had to go all the way back to 2003 to find the most significant level they have a higher probability of turning for a push lower is at 1.1414 while there is the 1.1440 just above I can see that it didnt get much reaction so is less significant. Otherwise they may hold below 1.1372 or the Asian highs today but I expect they will try and push some shorts out of the market before any drop. Having said that this whole QE program is different than what they have done before as is more like the Fed QE so does have potential to just keep weakening the Euro.

I will be open for the long from the lows yesterday at 1.1315 but prefer to be short after a pullback for the drop below.

EUR/USD 1hr chart 1-23-2015

GBP/USD Closes Below Yearly Lows On USD Strength

The daily close below the previous 2015 lows is significant for the GBP/USD but this pair has more potential for the reversal as the EUR/GBP drops while the USD finds resistance after its extended move. The 1.5000 psych level hanging just below current price and finding support adds to potential for a pullback here so I will be open for the long there during the London session. The lows are better but I doubt they will push 50 plus pips from the Asia highs if the lows are going to hold. Today I will be open for the long at 1.5000 and prefer a short at 1.5058 but will also consider 1.5026 if I see them accumulating on the breakout traders without getting a long set up.

GBP/USD 1hr chart 1-23-2015

EUR/JPY Makes Extended Push

I cant really say that the move on the EUR/JPY was on risk aversion but if we doo see this early set up start breaking the lows and continue with the USD/JPY running south then maybe. Th QE program will elevate stocks lessening the probability of flight from risk but equities are all there is left to gain returns so will be expected. Since I didnt catch the early trade I will look for the Asian high test during London for the short at 134.98 or if there is conviction below yesterdays lows then a backside entry. I am open for the long at the lows of 134.26 but will need to be clear since I see a higher probability of this pair going down regarding risk today.

EUR/JPY 1hr chart 1-23-2015


Forex News Today

The calendar today has French, German and EZ Manufacturing and Services PMI data but I highly doubt they will be pushing much on this unless they have a large surprise to the upside. This would mean Germany might start putting up a bigger fight against the ECB but at this point the probability is low. Otherwise they will be pushing around to get orders set for the next push.

The UK has Retail Sales data that I will be looking for a set up on the GBP/USD to trade. Expected to drop, if it disappoints it will give them reason to think the BOE may be next up to increase their QE so the push to new lows has good potential. Otherwise it will be opposite if they surprise to the upside getting above zero on the monthly figures.

The US has Manufacturing PMI and Existing Home Sales both expecting improvement. I can only assume that its priced in already and small misses will likely get ignored while a larger miss to the upside may cause more USD strength but with the complaints about a strong USD already coming in it may be muted.

Have a great weekend




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