EUR/USD, GBP/USD Analysis July 8, 2013
The EUR/USD this morning has made a gap down to open that has already closed at the end of the third push it made Friday last week. Of course it took the Nonfarm news as expected to do it so I didn’t et a trade other than what I call my BS news trade. In short the payrolls were a bit better than expected at 196K but the unemployment rate didn’t tick down as they expected. Since Bernanke is more concerned with the unemployment data I figured the move would at least be retraced 50 or so pips and I went long after the market slowed at the lows. My entry was 1.2812 and I held it with the stop break even over the weekend and got hit during the gap.
Today I will expect the reversal but I don’t want to see the hourly close during the London session below Fridays lows. If they do that then the probability for extended pushes goes up substantially. There is something going on here I haven’t been able to put my finger on yet. The info I have right now suggests that Bernanke has no choice but to start the tapering to give him some wiggle room when things do go south again. It seems as though the option to increase the bond and MBS purchases has left the table and one could argue that the US data has gotten better. The thing is with every piece of good data there is also bad that suggests there is no balance but just small pieces of a large puzzle that just don’t fit together. One would expect that if the economy is truly getting better the data would be improving across the board even if some are much smaller improvements than others. Time will tell I guess.
The highest probability level for the long is the psych level of 1.2800. A stop run there today during the London session will be enough to get me long. If I am correct and Bernanke may actually follow through with the taper then they will want to push some of the shorts out before the next push down and at least make an attempt at the 1.2900 level. The daily support at 1.2795 may also be breached as there will be stops below there they may want to get first. If by chance we get the hourly close below 1.2800 I will close any long and look for the short at the Asian highs of 1.2832.
The GBP/USD has had the same gap this morning although a bit smaller. It has also already closed taking care of any gap traders out there. As I mentioned in a commentary last week once it did blow below the 1.5000 level it ran all the way to the next daily level at 1.4865 before finding any support.
The clarity of the pushes looks more like there has only been two so far but I can also make an argument for three with the 2 red pushes being over 100 pips each along with the overall push from high to low is almost 450 pips. Therefore the argument for the reversal is pretty strong. The fact that it is at some heavy daily support also adds to the potential for a reversal today since even if they want to keep the push down going they will want to try and push the shorts out like with the Euro. Of course I will be open for both directions but will want to see a clean set up.
Right now the best level for a long will be the Asian lows that coincides with the lows Friday at 1.4854. As members know I don’t like using the Asian range as a level when the range is small but when it coincides with a daily H/L they are much more significant. The daily level just below at 1.4831 is the last line of defense for the long. If there is an hourly close below there she is going south but how far is questionable. The daily price action below there is littered with daily levels so it will be hard to determine the potential for any short. There is a decent probability for a short at the 1.4915 level but I would prefer to have them try and push out some shorts first and see it go to the 1.4976 level first. Hopefully I am along for the ride there.
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Forex News Today
The economic calendar today is light with scheduled releases but does have a few potential doozies for tape bombs. The only one of note during London is German Industrial Production expected to drop slightly. I doubt this will have much impact due to Draghi speaking to the European parliament and then the Committee on Economic and Monetary Affairs an hour later around the open of the NY session. The Euro Group Meetings are also today so watch out for any news from them as either they admit they are in deep dodo or they try and do the typical “all is well in Euroland” Its a toss up these days but with the Euro dropping I suspect they will try and slow that with some Euro pump.
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