EUR/USD, GBP/USD October 9, 2013 Analysis
It sure looks as though the markets are finally getting a little itchy about the US deadlock over the budget now. When a senator or congressman gets up in the morning and sees that his/her portfolio has lost a decent chunk of its worth they are a bit quicker to come to the table to work something out to keep from losing more of their ill gotten gains. Even the credit rating agencies have come out and said that the chance of the US defaulting is miniscule and they are not concerned about it that much. To an extent I agree with this assessment and we don’t have to look too far in the past to see an historical example.
In 2008 when everything was about to implode over the Lehman collapse and the treasury department tried to rush the 3 page 700 billion bail out of the banks through congress. At first they were like “what the heck is this” and rejected it hands down. Then a few days later the Dow was down around 1000+ points, they changed their tune and were just asking “where do I sign”. I don’t think it will be much different this time around when things really get nuts and all the pumping up of the stock market that has been done by the Fed releases. We will see the free fall and they will be lining up at the door to sign anything to stop the draining of their wealth. It will be comical to say the least. Of course it will have to get worse before they really see the writing on the wall but I think its getting close.
My guess is we will have to see the break in the S&P below the August lows before they really start to panic but there are those that think the long term trend line it broke and closed below yesterday will be the beginning of the free fall. I agree with that to an extent but the question is when will it be a big enough drop to get them in panic mode and work something out. It will most likely be the 1624 or even the 1554 level on the S&P. We will see, just keep in mind there is not many members of congress that don’t stand to lose a good chunk of their wealth as stocks plummet. Something will get done to calm the markets even if its just a Band-Aid to cover the sucking chest wound that is the US fiscal situation. On to the charts.
The EUR/USD had what looked to be some conviction to the upside yesterday but when the US opened up is was quickly smashed with them closing it below the open. For those of you who didn’t get to see the Algo Secrets video I will post it below but suffice it to say that the guy in the back room babysitting the algo was probably saying “No No No don’t go there” while telling the guys who run the program to “stop that thing from going any higher” What I am thinking now is that there wont be any real commitment on direction on this pair until they at least think something is in the works for a deal on the US budget. Therefor the best way to trade this pair will be from the high or low of this 70 pip range for the next few days or so. Since we already have a 40 pip range during Asia this morning with the potential fake out to the highs my thoughts are the chance for the break to the downside to test the 1.3500 level but seeing the conviction close below yesterdays lows will be the clue that gives me a bias for the short. Otherwise I will consider the long there also since we do have the hourly 200 ema sitting just below and clear buying going on there. Needless to say I wont be holding for a larger move and be happy with a 40-50 pip run in either direction.
The GBP/USD has similar price action and actually shows a second push to the upside. However the way price was moving yesterday it don’t look as though the movement was part of a typical plan as it whipped around like it was having a nervous break down. I will have a small bias for the next push up but not the typical strong bias we normally have looking to see the third push. We already have a 50 pip Asian range so I will be considering the long at the Asian lows during the London session but the better level is just below at 1.6057where it held yesterday. If it does get the close below there today I will wait for the test at the 1.6020 level. Since it does have the same price action as the Euro this morning showing its running off the USD mostly. If the EU breaks down the GU will too most likely and we will get the test of the lows. We will have to wait and see.
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Forex News Today
The calendar today has Industrial and Manufacturing production figures from the UK with expectations for a slight rise but barring a large miss I doubt there will be much movement without at least some hint of something getting worked out with the US budget the main concern for the big boys these days. If it does miss big then we will most likely see the move in the EUR/GBP which will effect the EU and GU. However creating any real conviction I doubt. There is also German Industrial Production due a bit later but I expect the same scenario.
For the US session the Fed releases their Meeting Minutes and we get to see just what was the reason they surprised and did not taper. I have my doubts there will be much new we learn since we have had many Fed member speeches so just be careful if your in a trade at that time of day. After that there is a Mario Draghi speech that has the same potential to create some volatility and since its a low volume time of day we may get large spikes depending on what he says so be cautious then also.
Here is the Algo Video for those of you who are not members to see. Interesting stuff we knew pretty much all along. Enjoy.
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