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Forex Commentary EUR/USD February 29, 2012

The EUR/USD did not act quite as expected yesterday although my short did run 60 pips before it came back to hit me break even. I expect this V bottom on the 15 minute chart during the US session was due to the US consumer confidence being better than expected and the euphoria of the LTRO getting launched today. Its still up in the air as to which banks will participate and what the take up will be. We will only get the full number from the ECB as they leave it up to the banks to disclose if they participated and how much they borrowed. Of course to be as secret as possible so the markets dont panic by knowing the truth of how insolvent most European banks are. Somehow that doesnt surprise me.

The good news is though. The ISDA decided that they would give us a break and postponed the first hearing they will have to answer the question of recent events with Greece and the ECB constitute a default. Of course myself and many others feel it does however Zero Hedge has a different take and does make sense. If they can somehow squeeze these swaps between the ECB and Greece within the realm of being a legal transaction then they will and all will be good. NO credit event. For now anyway. They are not going to discuss the PSI deal until March 30th so as ZH expects the euphoria to continue on this it wouldnt surprise me in the least.

This from ZH this morning.

 For a while there it seemed that together with the LTRO and the Bernanke testimony, tomorrow’s event trifecta would be joined by ISDA, which it had previously been rumored would make a decision on whether a credit event (read CDS trigger) had occurred in the context of Greece, and specifically following the ECB’s stripping of its own bonds under some arcane exchange offer that only the ECB was privy to (this is not a determination whether a credit event has taken place related to the PSI – that will take place in late March). According to a just released PR, this won’t happen, and instead ISDA will hold the meeting at 11 GMT on Thursday, March 1, the day after the LTRO, and announce everything was voluntary and by the books, just to avoid overloading the algos with bullish news at the same time (recall that the LTRO announcement will take place at 11:15 CET). In this way, the upside love will be spread over two days, which should hopefully result in another 30 ES point, as the headline scanning aglos no longer care what the headlines actually say, as long as there are headlines. Remember: when dealing with a bipolar Atari 2600 – quantity trumps quality any time, especially when coming off the biggest short-term central bank liquidity infusion in markets in history.

Getting to the charts the daily EUR/USD has had another bullish close above yesterdays close at 1.3464 and above the closing price on December 1st so I expect this to continue. The wild card here is that its approaching the 200 daily EMA and may find resistance there but considering the risk on euphoria in the markets it is less likely. My 15 minute chart shows what we who trade with the Smart Money call a reset and therefore has upside potential out weighing the downside. Today I will be looking for the trap move on the lows after Asia close and take the long from there.

Happy Trading


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