EUR/USD Fails To Close Gap Jan. 6, 2015
Failure To Close Gap Raises Probability For Lower EUR/USD Prices
I have to admit its a little early to say that the EUR/USD will keep rushing down from here but the probability has increased substantially with the dismal attempt at closing it yesterday. It did find support at the daily 1.1900 level mentioned in yesterdays commentary but also found resistance at the break out level around the current price of 1.1936. If they cant get enough buyers on board today then a test of the 2010 lows at 1.1846 is in order while just below is February 2006 lows of 1.1825. Typically I would think that there will be some fierce defense of these heavy levels but there may be something stronger at work here in the form of the USD carry trade unwind. As more than a few have stated this is something that really was inevitable as the farce of global recovery comes to realization. We have never thought of the USD as a carry trade prospect in the past but with the ZIRP and an endless print fest from the Fed this has become reality over the last several years. As this does unwind and more USD are repatriated the USD will strengthen more and there isn’t much they can do about it aside of more printing, of which will only make the problem worse down the road after a temporary respite.
At this point I have my doubts that the US government much less the people have the stomach for more printing but as I have said many times, nothing surprises me about what levels the powers that be will stoop to in order to put another boot to the can even if they are already facing the wall at the end of the road.
EUR/USD Seen Third Push
The recent moves on the hourly EUR/USD chart does reflect that it has made three pushes down over the last three trading days so the potential for a reversal is good but will require they have the desire to close the gap. Looking back a little further suggests that its also in extended pushes from the highs on December 29th leaving it open for further downside as well. At this point its a safer plan to be open on direction looking at yesterdays highs of 1.1975 for the short. If there is no desire to close the gap then they will likely stop it lower at 1.1962 but taking an entry there will need to be clear since its higher risk. Otherwise I will be open for the long and potential reversal at the 1.1898 level having the pysch/daily level as confluence.
GBP/USD Closes Gap, Pushes Down
The GBP/USD weakened after the disappointment in their housing data yesterday showing yet again the recovery in the UK was just as fabricated as it is in the US.
At this point the cycle is still a bit wacky considering the 260 pip drop on January second so I will be treating this as a first push favoring the short while open for the long from yesterdays lows of 1.5205. The best level to short is at yesterdays highs of 1.5320 but the probability of getting there is low if they cant break above 1.5266 either during Asia or early London today. Otherwise the 1.5266 is valid as long as they push it down enough to make a stop run to the Asian highs convincing they will push from there.
EUR/JPY Closes Inefficiency, Not Gap
Another sign of a risk aversion scenario the EUR/JPY closes the inefficient move but leaves the gap open. This could also have to do with a carry trade unwind in with the Yen since the USD/JPY isnt showing the correlation we look for, however the drop in US equities agrees all day long. This also qualifies as a second push down in my view and since we already have some conviction below yesterdays lows on the UJ, the probabilities are very high for the next push down today. Having said that the best level for the short is at 142.85 where the NY highs come in but if the Yen strength holds then they may push it off from here at the break out level of 142.55. If that is the case I will most likely miss the entry unless it gives a clear entry and the UJ agrees wholeheartedly. As of now its not looking that good.
Levels: EU short- 1.1975, 1.2000 long- 1.1898 GU short- 1.5320, 1.5266 aggressive long- 1.5205 EJ short 142.85, 142.62 aggressive
Forex News Today
The calendar starts off with Services PMI from Euro Zone countries with Germany most important. I dont see much of a sustained move on it unless it drops real close to 50 or below which is unlikely. It does have a higher probability for the disappointment but how big is the question. Otherwise the same goes for Euro Zone figures.
The UK also has Services PMI being higher impact for the GBP with the UK being a service based economy. Expecting a slight drop its still well above the 50 level so would take a larger disappointment to get a push started but surely has the potential. Seeing the set up an hour before the release for the short would be best today.
The US has Factory Orders and ISM Non Manufacturing PMI released at the same time. These have the potential of off setting each other but is unlikely. Any disappointment will need to be large to create USD weakness if the carry trade unwind is still coming in force while a smaller improvement would emphasize any USD strength.
MY APOLOGIES FOR THE BROKEN VIDEO OF INSIDE JOB IN THE COMMENTARY. I DIDNT THINK I WAS COPY WRITE INFRINGING WITH AN ITALIAN VERSION ALREADY ON YOUTUBE. HOWEVER YOU CAN STILL WATCH IT AT THIS LINK. STILL A MUST SEE!
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