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EUR/USD, GBP/USD and Gold Analysis May 19, 2014

The EUR/USD starts this week with nothing clear on direction so the safest entries will be at Fridays high or low. With the only news event being a speech by the president of the Bundesbank they will likely only move this pair if he says anything regarding the potential for the ECB to go full blown QE. Although he has been more open to letting the ECB print he has also been sticking to the “within the ECB mandate” mantra. What this means to me is he will be playing both sides of the fence until the German economy gets much worse. Therefore we will probably hear the same sort of speech to try and weaken the Euro since the strong currency hurts German exporters. Then at the last minute he will drop the ECB mandate into the mix. Eventually, Im pretty sure they will have to print but in the case of the ECB they will wait until the last minute. Which may be too late.

There was an interesting article this morning about Deutsche Bank though. They are in need of a serious cash injection to supposedly just ” boost a key gauge of the bank’s financial strength, its core Tier 1 level, to at least 11.5% of its risk-adjusted assets, compared with 9.5% now” I have my doubts that is the only reason they are looking for a single investor to sell 5-8% of shares in the bank to but its possible I guess. I remember when the first LTRO came about and the ECB told us that some banks were just low on liquidity and a week or so later we find out that several of them were fixing to go bust if the ECB didn’t act over the weekend. What peaks my curiosity is the article also notes that Deutsche is also holding 54.7 Trillion worth of derivatives. Yes that’s a T. I wonder if some of those aren’t looking so great.

If what I suspect is true and this could be bleeding over to other European banks then another LTRO may be just around the corner while they do their best to make us think the Busndebank is the hold out. If Deutsche Bank goes down the Buba will fold and of course in a surprise move the ECB will step in to save the day.

Anyway the best levels today are 1.3725 for a short and 1.3691 for a long. In order to see some conviction for direction I will need to see the hourly close above 1.3731 or below 1.3684

EU 1hr chart

The GBP/USD did make another push up Friday, even though it was lack luster concerning distance moved its clean enough to have a bias for the third today. I would expect it to need some help from the EUR/GBP like it got on Friday as well if the USD does not show weakness and the Euro rise with it. The best level to catch the long is 1.6808 but may dip to the psych 1.6800 level so I will be wanting to see a clear set up and get a good entry. There is also the chance they stop it at the Asian lows but would be best to see them test the highs Friday first.

GU 1hr chart


Last week gold found good support at the 1290 level while still working the Daily triangle its been in, compressing price more and more. To be honest I have never been a pattern trader but I do know that when price gets compressed as it is on gold when the break happens it will be big. At this point it probably wont do it until we get some news on more printing from the Fed or ECB. If they hold off like I expect until more banks in Europe look to be going under. The longer they hold off the more potential gold has potential to break to the downside while once they do have to print as most are rather sure will eventually happen then gold will have the pop to the upside until they beat it down again. For now trading manipulation at either the daily levels at 1290.51 for a long or the psych level of 1300.68 for a short will be the safest. Otherwise I will be waiting for the break to be holding any positions for a longer run in either direction.

1hr gold chart

Forex News Today

The calendar is bare except for the Jens Weidmann speech before the London session begins. Otherwise there is a speech from the Feds Fisher a couple hours after the NY session opens but I have my doubts he will drop any big hints on what the Fed will be doing soon.

Asian session traders need to watch the RBA Meeting Minutes for any signs of what they will do at their next meeting. This should only effect the AUD if they discussed lowering rates but may have other surprises as well.

Happy Trading


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