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EUR/USD, GBP/USD Forex Commentary August 30, 2012

Just a couple more days and we should be seeing some resemblance of more normal market conditions. There have been some set ups but the cleaner entries have had little follow through. Our more aggressive members have done well I have seen but myself being strict on my entries its been slow to say the least and I have had more break even trades than I like to see. As I mentioned in the August 29 forex commentary we are going into the pre news chop waiting for Ben Bernanke to have his say at Jackson Hole so I am expecting more of the same today. I will also say that there was some nice 1 hour stop runs to go short yesterday on both the EUR/USD and GBP/USD. I took the GBP and unfortunately it ran 37 pips and come back to hit me break even before the next push down. While the Euro trade would have netted 50 pips. Oh well we win some and lose some. At least I didnt take the hit.

On the Euro today I will be looking at yesterdays highs and lows for any possible entries. the level thats closest is the lows right now and has shown some good support with the rejection around the 1.2520 level. A good stop run there will be a nice place to take a long. I will consider a short from the highs during the US session around 1.2563 but would prefer to see a trap move at the highs.

The GBP/USD had the same choppy price action yesterday with a more limited daily range and I dont expect a break out with out some rumors being circulated on the QE or ECB bond purchases today of which I doubt will happen. It sure looks like we will see another choppy day. I will be looking at yesterdays highs or lows for entries just like I will with the Euro.

Forex News Today

the scheduled releases looks busy today but most are low impact events. the bigger ones start with the German Unemployment Change expected to add 7K jobs again. if this does disappoint or show negative figures it will show that German jobs are being effected by the slow down and will be Euro negative. 

From the UK there is Net Lending to Individuals m/m but I dont really expect too much from this. If there is a major surprise there will be room for some manipulation but I have my doubts.

The US has Unemployment Claims and unless there is a big miss to the upside there wont be much reaction I think.

Lastly the biggie for the day is an Italian 10yr bond auction. this one is a toss up. If it goes as well as Spains auction this week we will see the Euro rise the opposite if it goes bad. I do find it a bit curious that they are having it later in the trading day so keep an eye out for the results.

Today I leave you with the three questions posed to Mario Draghi by my favorite gloom and doomer Graham Summers. This guy looks to me to have the situation pretty close to pegged.

You say that whatever measure you take… it will be “enough” to support the Euro. Seeing as you’ve already spent over €1 trillion via your LTRO 1 and LTRO 2 schemes only to find that:

The uptick in EU banks shares lasted less with each new scheme

The bond and credit markets punished those banks who sought funding via these vehicles

…my question is… what exactly is “enough”? Obviously €1 trillion wasn’t. Would €2 trillion be? What about €5 trillion? Seeing as banking deposits at the troubled PIIGS banks exceed €5 trillion alone, it seems even €5 trillion wouldn’t be enough to backstop the EU and get it out of this mess. So could you quantify “enough” please?

My second question would be… if you were to announce some “Hail Mary” policy of monetizing trillions of Euros worth of sovereign and banking debt, how would you stop the Euro from imploding?

You’ve no doubt observed the impact that QE 1 and QE 2 had on the US Dollar. How would you stop the Euro from collapsing if you were to announce an amount that would indeed be “enough” to contain the EU Crisis? As the below chart shows, the Euro is already on the ledge of a very big cliff.

My third and final question… thus far the ECB, when acting in concert with Germany and the IMF, has failed to contain the Greek crisis (there is now talk of Greece needing a third bailout)… how exactly do you intend to handle Spain or Italy (economies and banking systems many multiples larger than those of Greece)?

After all, if the ECB didn’t have “enough” to handle Greece, what makes you think you have “enough” to handle Spain or Italy? I note regarding this last point that Spain’s bonds are falling again despite a shotgun bailout of €100 billion just a few months ago.

If you actually have answers to these questions, I’m sure the world would love to hear them.

Man I like this guy.

Happy trading


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