EUR/USD, GBP/USD Analysis April 9, 2013
Bernanke did as I expected and sent the EUR/USD soaring after the US market closed. As I was sitting here watching price I was thinking to myself something just happened. That’s when I remembered what I said in yesterdays commentary about Helicopter Ben having a speech late in the day and gave a warning to members for anyone who might be in a EUR/USD short at the time. Sure enough he couldn’t help himself and I surly got a chuckle out of it. So in curiosity I had to go look at the speech because the move didn’t start until almost 30 minutes into it.
His speech was concerning the US bank stress tests and how supposedly the US banks are in a much stronger position today than they were before the tests started a few years back. So Im thinking OK so far so good because this is true but not because of the stress tests. The US banks are stronger because of the 700 billion USD given to them to recapitalize by the US tax payer. Not because of these tests. Then the kicker came and this is where it gets really good. This is the text from the Fed website.
“Another challenge is that our stress scenarios cannot encompass all of the risks that banks might face. For example, although some operational risk losses, such as expenses for mortgage put-backs, are incorporated in our stress test estimates, banks may face operational, legal, and other risks that are specific to their company or are otherwise difficult to estimate. It is important for banking firms to consider the potential for losses from these other classes of risks as systematically as possible, and supervisors also account for these risks as best they can. Of course, unforeseen events are inevitable, which is why maintaining a healthy level of capital is essential.”
In layman terms this means the stress tests are really just a pile of crap. More or less the same as the bank stress tests that Europe did on its banks just before they all started to fail and need a Fed USD swap to keep Europe alive even for just a few more years. Not to mention the fact that QE2 and QE light both went almost 100% to European banks with branches on US soil.
In summary we can only conclude that even though US banks are much better off than they were after being recapitalized. The fact is they are still standing in a pile of s#!* because we all know that the majority of them are holding a pile of derivatives that are off their balance sheets and is the basic reason Lehman, AIG and several others needed to be bailed out was because these started to implode and had to be realized on the balance sheets. Long story short, don’t buy into the US banks or S&P 500 because the unforeseen events that Bernanke talks about are still hiding in the closet and could strike at any time. Nuf said
On to the charts.
The EUR/USD looks cleaner now with this Bernanke move pushing up over 90 pips from the lows Monday and shows a better accumulation area for the pushes. Considering the movement and scale of all 3 pushes I am thinking its will try and reach the daily resistance at 1.3100 before the reversal. If we do get a clear topping formation before that I will be willing to take the short but we haven’t seen that yet so my bias will be for the long today from a retest of the highs yesterday at 1.3038. I will be open for the short with an hourly stop run to the highs of 1.3067 but if I do enter short there I want a good entry and will be watching for the hourly conviction move to the upside.
The GBP/USD was doing exactly what I thought it was during the Asian session in yesterdays commentary and came back to test the manipulation pattern I mentioned with more manipulation and gave a great entry for the short that ran almost 100 pips. Congrats to those members who caught that trade that should have only gone against the entry by a coupe pips. Please leave a comment below if you caught that guys. I would love to hear that more members than just Vikash caught it.
We often get questions about how and when the manipulation occurs and what I always say is the way I look at it is the entire day is one big manipulation that comes together in stages. First they are manipulating as they accumulate most of the position usually during the Asian session. If they are selling they have to make traders think price is going up so they can sell it to them. Then when Europe comes online they finish the accumulation often by first taking the breakout traders out of the market. Lastly if the orders are not stacked well enough they will either just play the breakout traders on the other side of the range or make a small push further to get more longs on board, sometimes doing a stop run above a previous high in the case they are selling. The GBP/USD was a classic example yesterday as you can see by the chart below.
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Today this pair I will be treating it as no clear direction and a small long bias. Its possible we have a failed second push. However that is not clear until we get the push and hourly close below the 1.5200 area. We also have the potential for the long at the hourly and 4hr 200 EMAs which should provide some good support and if we get some clean manipulation during London I will be happy to take the long with a good entry. Most likely the 4hr since yesterdays lows is close. having said that I will want a nice set of candle patterns showing the manipulation because there will be support expected even if its going to break. In other words I wont be entering a long on just a couple pin bars. 😉 The level I will consider a short from is 1.5315-20 since that is proven resistance right now. Its possible that we see the manipulation a little lower but it will have to be pretty in order to short from there.
Forex News Today
The scheduled releases are light again today with just Manufacturing and Industrial Production figures from the UK. Both are expected to get into positive territory but I have my doubts. The way I see it is it will need a much bigger surprise to the upside to create any sustainable move otherwise just a small miss negative and we will most likely see GBP weakness.
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