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EUR/USD, GBP/USD Forex Commentary September 5, 2012

As I suspected the first push to the upside on the EUR/USD is now being proven to be a false push. Now that we have an hourly close below Mondays lows here during the Asian session we have a potential first push to the downside giving the bias to the short position now. With the close below the hourly 200ema it makes it even more likely to continue. Having said that we cant totally ignore a potential long position if this does continue down throughout the Asian session. Of course I will be happier if we get a pullback to the lows yesterday at 1.2554 for the short but with a clean set up its fine to trade against a first push. However we dont want to hold out for the longer move trading against the smart money trend and I want to see it hit some good support around the 1.2500 level.


The GBP/USD is still hammering at the support in its range showing that the move on the Euro for the first push down is mostly Euro weakness rather than USD strength so we will need to keep that in mind today. We may see them travel in opposite directions for a while today. Of course I will be treating this as third push chop until I see the hourly close below that support zone at 1.5848. The first place to be looking for the short will be anywhere in the pin of the hourly stop run candle during the US session yesterday but would prefer the highs at the 1.5900 level. Any potential long will have to be after this support holds during Asia and a pullback to it during the London session.

Forex News Today

Scheduled releases are even lighter today with the EU retail Sales being a medium impact marked for the Euro Zone of which I dont expect much from. The one that has potential is a German 10yr bond auction. there is a possibility that the rates could rise given the fact of Moodys downgrading the outlook on the Euro Zone to negative. Its a low chance but its there.

The UK has a 30yr bond auction marked as low impact so thats no big deal either.

We Are About To Enter The Twilight Zone 

Of course I am not the only one who thinks what the central planners have been doing since the onset of the crisis is totally nuts but I had to chuckle when somebody refers it to entering the Twilight Zone. The fact is hes not far off and one can only expect bad things to happen once that occurs. Anybody old enough to remember the TV show or the movie knows that once you have entered nothing good happens and most are lucky to survive having learned a major lesson. Those who didnt learn, well they were whacked but the monster on the wing of the plane. When I found this referral from JPMs Michael Cembalest i just had to show you. Along with a video I know I posted in a previous forex commentary but its just as relevant today as it was back then. First here is the thoughts from Michael then enjoy the short clip.

In two days Mario Draghi may, although without Germany’s blessing most likely will not, announce vague terms of how the ECB plans on monetizing hundreds of billions in short-term (sub-3 Year) bonds by Spain and Italy, which according to the ECB is not really monetization, and the only thing that is needed is for the two countries to admit they are insolvent, something which paradoxically will never happen as long as the ECB does everything in its power to spook markets away from fair clearing levels, and to keep the cashflow implied price at record divergence from the centrally-planned “valuation” determination. But let’s assume Draghi does go ahead and one up Bernanke, announcing the next easing round a week ahead of the September FOMC meeting, as both central banks take the lunge into the latest lap of currency devaluation. What happens then? Well, as JPM’s Michael Cembalest puts it quite succinctly, Draghi will unleash nothing short of the transformation of the ECB from the European Central Bank to the European Creosote Bank (see below for the reason). Numerically, this will mean that once the ECB is done monetizing another €1 trillion or so in bonds in the next year, the ECB will then hold just shy of a unimaginable 50% of the entire Eurozone GDP, taking the New Normal monetary world well beyond the rabbit hole and deep inside the twilight zone.

Happy Trading


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