Euro Carnage Continues March 12, 2015
EUR/USD Comes Within 20 Pips of 2003 Lows, Next Stop 1.02 After Break Down
The Euro Carnage seemingly has no end in sight as the EUR/USD tested close to the 2003 lows yesterday. I have to admit that the probability of seeing 1.0000 by or before June this year is certainly in the cards. I did book 318 pips on my EU short yesterday as daily support kicked in just above the 1.0550 level I had my take profit set at. I was pretty sure it had more push in it but wasn’t willing to risk the well over 100 pips profit to see it potentially bounce at the 2003 lows. Im sure there will be another entry soon.
It also is coming more to light that the ECB is having troubles only two days into the DOMO finding that they are already buying negative yield German bonds having no plan to deal with the losses as of yet. Banks have already started discussing possible options for the ECB in order of, as JP Morgan pointed out, going further negative on deposit rates at the ECB. Of which will have the same effect on the Euro even if they fully stop the DOMO program do to lack of supply. However I doubt they will totally stop but they will have some crafty scenario which may be opening the door to the periphery more or have to make the decision to go further negative on rates in order to keep the Euro weak. The last thing they want is a spike after all the work done to weaken it. Below is Citibank assessment.
The core NCB quota is moved to the semi-core/periphery to prevent the effective tapering of QE. This is made more practical buy the localization of risks.
If that proves too controversial, perhaps with an eye on the German constitutional Court, then the ECB could move to cutting the depo rate further to maintain loose financial conditions and especially to prevent a taper tantrum forcing EURUSD higher.
In short if the problems continue for the ECB to get sellers of safer bonds and the effective taper happens sooner rather than later we should expect at least a temporary hold on Euro weakness until they decide to lower rates further into negative territory.
EUR/USD Runs to 2003 Lows
The probability for the next drop on the EUR/USD is higher fundamentally still considering we know that the ECB will be pulling every trick in the book to keep the QE train rolling for now but if things progress in the same way this week has gone it wont be long before the EU gets a bounce. With multi year lows being tested its possible it holds in a range here for awhile as well. Again I will be fundamentally bias for the short but also open for a long from the lows for a pullback. The best shorting level today is up at 1.0607. The 1.0566 is valid but being so close to current price and seeing regular pullbacks of 50+ pips it would be best to see it test down significantly before trading a break out level like that. Otherwise I will be open for the long from a stop run to the lows and need some clear price action to show they wont let it pass.
GBP/USD Catching Up On Risk aversion
The GBP/USD took the plunge yesterday as full risk off continued and it played catch up to some degree dropping 200 pips from yesterdays highs. I will be treating this as the first push even though its rather extended compared to the ADR. The move was efficient enough that they shouldnt have too much desire in a pullback unless of course this is a fake out. Having said that the rhetoric of rate hikes in the UK have slowed and considering UK data has been lack luster the probabilities are skewed to a move south. However the levels are not all that great as of now with a weak 1.4945 just above current price and a daily low at 1.4969 just above I would prefer to see a move from the Asian box closer to the lows to short a set up at 1.4945 and if it pops higher the upper level will need some very clear trapping. I will be open for a long from the lows but again need something clear to change the bias.
EUR/JPY Runs Second Push
With the EUR/JPY running the second push yesterday I will have a bias for the next push down but a little cautious of how it has blown the ADR significantly during the last two moves. Its still holding above a significant daily low for now but the next push should be to test the 127.00 handle or lower if these 200+ pip moves are going to be consistent. At this point I think it will need some help from the USD/JPY and just may get it with it testing close to Tuesdays highs hopefully getting rejected today. The best level I see is up at 128.86 but its looking like it may not get there with the early rejection at the 128.30 breakout level this morning. Therefore as long as they hold it down I will consider the Asian highs during the London session.
Forex News Today
The calendar starts with a slew of inflation data from the Euro Zone mostly expected flat or close to previous figures and I dont expect much for misses. The only thing that could start any sustained push to the upside is large positive spikes of which I doubt. Otherwise Jens Weidmann has a speech that shouldnt do much unless he says something negative about the ECB QE program.
Later the US has Retail Sales data expected to rise to positive territory which is likely priced in so will need a disappointment to stop USD strength but will need to be big. Otherwise any miss to the upside will keep the USD pushing. There is also Thursday Unemployment Claims but considering the way US Unemployment has been pushed aside because the rate is a laughable 5.5% this probably wont do much barring a spike to 350K.
Lastly NY session traders need to keep an eye out for the BOE Carney speech even though the rate talk has been quiet lately.
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