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EUR/USD, GBP/USD Daily Forex Commentary June 11, 2012

We have had a rather large gap to the upside on the EUR/USD over the weekend due to the release of Spanish banks getting bailed out and there is nothing clear about the pushes at this time. During moves like this we have no choice but to look for the manipulation. I do feel that there will be an attempt to fill that gap but will depend on the optimism that created it fading. 130+ pips is a sizable move and if the optimism for all being well in the Euro Zone continues the market will have a hard time filling it. More on that later.

For the London session I will be mainly looking for the stop run above the highs to short from or the manipulation as they try to fill that gap and see the trap move at a significant support level for the long. I do prefer the short to fill the gap in this case but may not get the entry I like to pull the trigger.

The GBP/USD I will be treating in the same fashion today. After the large move down on Friday the gap up on this pair was much smaller than the Euro and will have a higher probability of filling. The levels of push have been blown up here also as we were expecting the 3rd push Friday that failed to materialize. I did mention in Fridays commentary there was a chance for this to happen as the Euro was expected to reverse and either the GBP would go with it or have a shorter move while the EUR/GBP made a large move. The market decided they weren’t going to make the 3rd push on the GBP/USD and we had a failed 3rd push which does happen but not that often.

The best trade scenarios I see for this pair is a stop run to the highs from last Thursday or a clear manipulation, trap move to the downside for the long at the close of the gap or possibly at the hourly 200ema.

Forex News Today

Scheduled releases are slow and we only have French Industrial Production just before London open. This will most likely be muted by the potential tape bombs coming from the EZ today.

Spains Banks Get Their Bailout

To be perfectly honest I find it very hard to believe they actually agreed to bail out Spanish banks. There is only one reason they did and it has to be that one or more of those banks would have been filing bankruptcy this morning if they didnt get a cash injection.

The point that sticks out to me the most is the figures that are getting reported of the bailout size is 100 billion. Thats all good but from what I see is Spanish banks actually need in the neighborhood of 250-300 billion just for the banks. That does not include what Spain needs to cover what it would need when it gets its bailout. Yes that whole charade is intended to avoid Spain needing an official bailout for the government but the way I see it is its just a matter of time.

Now lets get on to just where this money is coming from. Supposedly the EFSF and ESM will be dishing out these funds but the ESM doesn’t even exist yet and the EFSF only has promissory notes that cover a bulk of the fund and Spain is a contributor of around 20% of that. Even though it seems like this is a done deal the question still remains as to whether this is actually going to happen. I have my doubts as it is already causing ripples across the EZ and would seem to have created a situation that just about guarantees the Greeks will not back a pro bailout government in the election this Sunday.

This is a excerpt from a Zero Hedge contributor that details the situation a bit further.


Gradually, the key open items from yesterday’s Spanish bailout are getting some closure. First, we learned that Ireland, as speculated, will demand a comparable retroactive bailout renegotiation, an act which also puts the Greek elections a week from today in play. Then, we got definitive confirmation that the Spanish loan, coming at ~3% or half Spanish GGBs, is a priming loan, subordinating existing creditors. Finally, we learn that the ESM – the bailout mechanism at the heart of all current and future European bailout plans, and which still has not been ratified by Germany, is in danger of being scuttled by none other than the German opposition. The reason? According to a Reuters report, “A [Spiegel] report that German Chancellor Angela Merkel is not serious about implementing a European financial transaction tax threatens to undermine an initial deal struck last week with the opposition over the EU’s planned fiscal pact… The Social Democrats (SPD) and Greens are insisting on a plan for a transaction tax and measures to boost growth.”

It now appears, Merkel has been posturing on the issue which the opposition holds quite dear. However, she needs the opposition on her side to pass not only the fiscal pact but the ESM ratification, without which the entire Spanish bailout collapses: “She wants to push the pact through parliament in the next few weeks together with a bill on the new European Stability Mechanism (ESM) bailout fund which Spain may use, but needs the opposition to get the required two thirds majority.” All this ignores what Die Welt reported earlier today, that “Spanish banks should come under special supervision” according to Volker Kauder, parliamentary leader of Merkel’s CDU, something which the Spain public would violently oppose. In other words: hold off on popping the Spanish bailout champagne…

We are in some strange times and with unprecedented events like this happen we are getting closer to the big correction. It does amaze me how much the powers that be are putting so much effort to stopping the inevitable.

Happy Trading


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