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Forex Commentary EUR/USD, GBP/USD May 9, 2012

The EUR/USD did make the reversal of the 3 pushes intraday yesterday and now has made a choppy push to the downside. If I try and clear it up by going to the 4hr chart it shows me 2 pushes down so far and I would expect the 3rd during the London session after a manipulation move to the upside. There is a chance that it could just run off w/o giving me an entry but that wont the first or last time it does that. I did manage to catch the short from 1.3033 just before the US session yesterday. Once it ran off I moved the stop to break even and sure enough it goes about 50 pips and turns to come back and hit me break even as I slept. Under different circumstances I would have just taken the 50 pips but the fundamental weakness of the Euro made me think it had a higher probability of consolidating rather than making such a pullback but it did and here I am out of the market while it runs off without me. Good thing there will probably be another opportunity today. Onward and upward right?

The GBP/USD is in a similar situation with 2 clear pushes to the downside but having the big double bottom its working on retesting now does give me cause for concern. The fact is that with Europe starting to fall apart like I expected months ago the GBP is going to be seen as a save haven currency again and will get a bid like the USD so in turn will be supported somewhat throughout the Euros decent. However gravity will still be in force as the Euro drags it down with it but the moves will be smaller as the EUR/GBP makes up the difference. having said that the GBP/USD is still worth trading and once the EUR/USD has a daily close below the 1.30 level it could be a race for the bottom so to speak.

The GBP/JPY and EUR/JPY look interesting for some continuation to the downside also but we need to keep an eye on the USD/JPY as it dips below the 79 level and the BOJ steps up its rhetoric on intervention or even jumps in at any given time. The fact is the Yen is tied with the Swiss franc for the  top dog  in safe haven currencies so with the floor on the EUR/CHF being maintained the Yen will have more potential for strength until the BOJ steps in and buys USD. Which in my opinion will be anywhere below the 79 level so the drops in the GBP/JPY and EUR/JPY will be mostly determined by the decent of the EU and GU once the BOJ starts stepping in. That may not happen as soon as I expect so I will still be looking for the manipulation up before shorting the Yen crosses.

Forex News Today

Scheduled news today is light again with the French and German trade balance, a 30yr bond autcion from the UK and a 10yr auction from the US. I dont thing either the UK or US will have any trouble getting rid of these bonds so the market will be moving on tape bombs coming from any spew from the European politicians and of course there will be alot of that just as there was yesterday. What I will be watching out for and the reason I tried to hold my Euro short yesterday is if the leader of the Greek Syriza party can get a government of the leftists together. i have my doubts but if he can then its over for Greece and we will have to wait and see just how bad the fallout is when Greece has a hard default like he wants. things are about to get very interesting my friends.

Lets point the finger at the Fed for a moment.

I came across this article awhile back and have been waiting for an opportune time to post some of the content of it and I figure that this is a good of time as any. Just when everyone is pointing at Greece and the EZ for corruption all the US needs to do is look to the east (New York and Washington) to see some of the most “legalized” corruption in the world. Here is the entire piece from The Testosterone Pit talking about the second ever audit of the FED and what was found.

The Government Accountability Office (GAO) finished its second audit of the Federal Reserve System and came out with a 127-page report that outlines, among other issues, the huge and complex conflicts of interests that arose when the Fed decided who got what during the multi-trillion dollar bailout mania between 2007 and 2009 

Speaking of conflicts of interest: the GAO audit was authorized by the Dodd-Frank financial reform act—whose co-sponsor Barney Frank (D) is scheduled to attend a Wall Street fundraiser in New York tonight, according to Politico. Last June, Frank attended a Wall Street fundraiser organized by the Securities Industry and Financial Markets Association, which lobbies against financial reforms. Money is important, after all. Even for President Obama. He raised more money from Wall Street than did all GOP presidential candidates combined, according to a Washington Post analysis.

So where were we? Ah yes, conflicts of interest, favoritism, and lots of money for some—but not all:

The GAO identified 18 former and current members of the Federal Reserve’s board affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis….

For the heck of it, let’s dive into a specific example.

In January 2008 when the financial crisis was already in full swing, Goldman Sachs board member and shareholder Stephen Friedman joined the Federal Reserve Bank of New York as a Class C director. At the time, Goldman Sachs was an investment bank, and thus not regulated by the Federal Reserve.

But then Lehman Brothers began to totter. Its CEO, Richard Fuld, a Class B director at the New York Fed, met with Timothy Geithner, president of the New York Fed, and with Friedman, who was then chairman of the New York Fed (and still sat on the board of Goldman Sachs). Fuld needed help. However, due to potential “reputational risks,” Geithner and Friedman turned down his request. Further, Federal Reserve Board practice sees to it that directors resign when their financial institutions get in trouble. So, instead of getting bailed out, Fuld had to resign. And on September 15, Lehman filed for bankruptcy.

September 20, Goldman Sachs, now tottering too, submitted an application to become a bank holding company. With Friedman being chairman of the New York Fed, the application was approved overnight. That did a number of things, among them: It gave the firm access to the Fed’s unlimited resources; and Friedman became ineligible to remain a Class C director and should have resigned. But he didn’t.

Then on September 23, there was a public demonstration of just how intertwined the financial elite around the Fed is. Friedman’s long-time friend and client Warren Buffet announced Berkshire Hathaway’s investment in Goldman Sachs. During an interview with CNBC, Buffet said that he wouldn’t have made the move, had he not been certain that Goldman Sachs would get bailed out. And he got a special deal: $5 billion in preferred stock with a 10% annual dividend plus warrants to buy $5 billion in common stock at a strike price of $115. When the announcement was made after hours, GS jumped to $134.75. The warrants were already in the money (today, GS closed at $100.86).

In October that year, the New York Fed asked for a waiver that would allow Friedman to remain a Class C director while being a board member and stockholder of Goldman Sachs, the very firm he was now regulating and bailing out. On January 21, 2009, the waiver was approved though not publicly disclosed. But throughout that time, Friedman, as chairman of the New York Fed, purchased more Goldman Sachs stock, knowing what bailout instruments were being planned and implemented, and which firm got how much and under what conditions.

Among the 18 people identified in the GAO report was Jeffrey Immelt, the CEO of General Electric, and a director on the board of the New York Fed. He was involved in establishing the Commercial Paper Funding Facility that later handed GE $16 billion in bailout funds (he is now Chairman of the Council on Jobs and Competitiveness in the Obama administration). Another was Jamie Dimon, the CEO of JP Morgan Chase, and a director at the New York Fed. And we can assume that there were many more that the audit didn’t identify.

These audits are good. And they’re necessary. So we’re grateful that Senator Bernie Sanders sponsored the amendment to Frank-Dodd that authorized them. But they’re only a feeble first step. Courageous congressional action to clean up the financial cesspool that is bogging down the economy should be next. But Congress is hooked on Wall Street fund raisers. And it is hooked on the Fed’s printing press to monetize the gigantic budget deficits. So there isn’t much hope for serious reform.

Interesting to say the least wouldnt you say?

Happy trading



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  1. alex123
    alex123 May 09, 06:56

    Thanks Chad, I always look forward to the results of your daily research, it makes enlightening and interesting reading in the morning.

    I’ve just been re-reading The Great Crash 1929 by the economist John Kenneth Galbraith (first published in 1954) and here is the concluding paragraph referring to whether the lesson of 1929 had been learned and if in a similar situation better decisions would be made by the financial community that could have helped prevent such a serious situation developing in the future:

    ‘But now, as throughout history, financial capacity and political perspicacity are inversely correlated. Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even though it means deep trouble in the future. Here at least equally with communism, lies the threat to capitalism. It is what causes men who know things are going quite wrong to say that things are fundamentally sound.’

    Very relevant to today don’t you think?


    Reply to this comment
    • Chad
      Chad May 09, 09:30

      Hi Alex
      I couldn’t agree more buddy. Im sure that book goes into greater detail than the video series Ster put out last week but yes today is just a remake of the 1929 crash. A good analogy would be the remakes of the movie King Kong. The original was done in the early 30s and the 2nd in the 70s and then the one recently. Kind of odd they all coincide with economic disasters dont you think? The budget was much bigger with different actors (stupid politicians) and better special effects (creative monetary policy) but the plain truth is in the end the monkey still dies (our economy). Its almost laughable that our current situation can be easily summed up like the remake of a movie. One would like to believe we are smarter than that but apparently we are not.

      Reply to this comment
  2. Steve V.
    Steve V. May 09, 08:38

    Chad, I love the news you share with us.It kills me that as individuals we donate thousands of hard earned money to elect these guys only to have them screw us out of more money. Keep it coming, Thanks, Steve.

    Reply to this comment
    • Chad
      Chad May 09, 09:07

      Thanks Steve Im glad so many members and visitors alike get value from the commentary. Hopefully things will change an we can start getting better people in the government but history does tell us, that sort of change doesn’t come without a crisis of epic proportions and its looking like we will get it soon.

      Reply to this comment

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