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Euro Short Squeeze Or Profit Taking Jan. 27, 2015

Euro Shorts Get Squeezed On End Of Month Flows Most Likely

Essentially the short squeeze and profit taking at the end of the month mean the same thing but the question for us is, will this continue? At this point the intraday push up has some merit being a 200 pip move but I wont be entirely convinced until we see conviction during London today. As I look through the news and consider the Greek vote and what it means for the Euro Zone, fundamentally the Euro has no where but down to go. However that dont mean there wont be some pushes upward as they take profits at the end of the month as they usually do. That being said I will share some excerpts from articles that explain where we sit concerning the USD flows along with what amounts to an all out currency war that started years ago. First from one of my favorite doom and gloomers with the title of,

You Do Not Get Moves Like This Unless Stuff is Hitting the Fan

In today’s world of monetary insanity, investors seem to forget that $1 trillion is a staggering amount of money. So to put that $9 trillion carry trade into perspective, if it were a country instead of a carry trade, it would be roughly equal in size to the economy of China, the second largest economy in the world.

Suffice to say, we’re talking about a truly staggering amount of borrowed US Dollars that have been invested into other assets/ investments.

Carry trades only work if the currency you are borrowing in doesn’t rally. As soon as it does, your trade very quickly goes into the red.

This is particularly true if you’re talking about a corporation that has borrowed in US Dollars to fund projects in countries where sales are denominated in other currencies (Europe, Asia, etc.)

This tells us point blank that something MAJOR is happening in the financial system right now. You DO NOT get 20+% moves in the US Dollar during normal, healthy environments.

Now from the currency war perspective.

Once the Swiss National Bank (SNB) decisively went rouge and un-pegged the floor between the Franc and Euro everything changed.

I don’t use the term “war” willy-nilly. These are the types of moves when preservation is at risk. When bold actions knowing there will be great casualties (even if it’s monetarily) must be taken. For these are decisions between existing another day – and existence at all.

What does the Fed. now do about the one thing all this monetary policy mayhem was implicitly devised for (e.g., 2% inflation) when other Central banks are reacting to the Fed.’s own cutting of the QE credit cards and acting in a self-preservation manner; which is now driving scared money from around the globe directly into the one monetary vehicle that proves the Fed. was clueless in its forethought of unforeseen consequences? e.g. The Dollar.

Now huge flows of scared money are directly flowing into the Dollar causing it to rise, and rise at an impressive pace. All this and its only been a little more than 90 days since the QE spigot was turned off.

This is the problem with all Keynesian styled philosophy. It works well, and seems utterly brilliant on paper and in the classrooms of academia. When trouble arises its “To the text books!” for answers. Change a line in the speech here, change the meanings of this to that, and BAM! – crisis solved.

However in the real world it doesn’t work that way. Again just like war when the battle starts – all earlier plans get thrown in the dust heap. And make no mistake. This was all started via armchair generals who believed monetary policy could be manged only within the Ivory Towers or walls of academia. The consequences of these policies are multiplying by the day.

For as Mike Tyson once said so eloquently: (I’m paraphrasing) “Everybody’s got a plan – till someone punches them in the face.”

The SNB has just landed the first blow. Now what?

You can read the full article at the link below the Forex News

EUR/USD First Intraday Push Up

The EUR/USD could go either way today but I expect this will continue as end of month flows have a couple more days to finish. However if there isn’t enough conviction and they have simply taken the profits early this pair could easily drop to new lows. The best level for a long is 1.1220 but I prefer to see conviction above 1.1289 before being convinced so the backside entry after seeing that during London has better probability than taking the set up without conviction first. Otherwise I will be open for the short at 1.1289 but will be cautious trading against the push.

EUR/USD 1hr chart 1-27-2015

GBP/USD Gets Reversal For First Long Term Push

With a long term push up on the GBP/USD yesterday the probability of a move to test the recent highs is good. Im glad we havent seen potential false conviction during Asia so far and will be looking to see an entry at the Asia lows during the London session today. If the 1.5072 cant hold and I see conviction below I will be more open for the short to the backside. Yesterdays highs are valid for the short but I will need to see they wont let it pass with clear traps before taking a lower risk short from 1.5100.

GBP/USD 1hr chart 1-27-2015

EUR/JPY Shows First Long Term Push as Well

At this point with the EUR/JPY I see it having more potential for a false push than the GU. Unless some serious USD weakness kicks in this has a lower chance of seeing the second push. Having said that I will have a bias for the next push up but will want to see it running on the Yen as usual. The best level for the long is the Asian lows around 133.00 but they could test down to 132.59 before pushing up as well. Any conviction below 133.00 without a test of the lower level and I will look to get short. Otherwise I will be open for the short at 133.70 but again will need enough to trade against the bias while watching for any conviction.

EUR/JPY 1hr chart 1-27-2015


Forex News Today

The calendar is a bit busier today starting with UK GDP data. With the quarterly figures expecting a small drop and yearly a small rise they may offset each other but in any case will need a larger miss to create a sustained move.

The US has Durable Goods data early on and later New Home Sales and CB Consumer Confidence. All are expected to improve so the best chance for a move at these releases are if they disappoint. Otherwise if they are close or a little better than expected than we should see the USD strength continue even if its slow due to the Fed meeting later this week. I dont expect much from the Services PMI with all the higher impact news released at the same time.

From Keynesian Shangri-La To Outright War

Happy Trading




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