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Forex Commentary EUR/USD, GBP/USD September 6, 2012

Today is the day. The day when we see just what Mario Draghi and the ECB has up their sleeve. There was a leak yesterday (intentional leak) that Dragi plans to buy “sterilized” short term debt of countries (Spain, Italy) who formally ask for help. This is the rub. The formally asking for help implies they ask for the bailout which comes with conditions of the painful austerity that nobody wants to go through. So will they ask? I have my doubts until things get far worse for these countries. Why ask for the bailout when the mere words of the ECB central planner actually has more effect than the actual programs. Think back to the LTRO. Sure it worked for a little while but there was still a need for more once the market realized that these banks were only shoring up holes in their balance sheets nobody knew existed and the money never made it to the economy. Therefore no improvement to any countries economy was made. Now even Germany is teetering and will soon be in a hole trying to dig out while the rest of Europe still expects the Germans to bail them out. Are you familiar with the term “circle jerk”? Yes its just a more colorful way of saying Ponzi scheme but the further these central planners push on with their agenda the more colorful interpretations of the same thing we are going to hear. On to the charts.

Today we have yet another false push down as the smart money is temporarily off their game and news rules the day. I have to admit that its much harder to manipulate the markets when the typical news used to manipulate means next to nothing and tape bombs that used to be few and far between come three to five times a day or more. Of course mostly rumors and leaks but a majority of these have come to fruition so must be taken seriously. On top of that we have the headline algos that go whacky when ever a tape bomb is released. 

Since we have pushed back into the chop at the highs what I will be looking for is the short at the hourly stop run candle during the US session yesterday. The closer to the top of the wick the better. However anybody who takes the short today should understand that you are betting on Draghi disappointing the markets when he does his thing. If we do see the manipulation to the downside when London opens then the first place to take a long from I see is the break out area around 1.2570. this is more than likely the safer trade as there will probably be some rumors to push the market down before Draghi comes on and does the typical Euro pump.

The GBP/USD looks more clear today with the stop run to the downside. We did have several members that had the wherewithal to take the long after that beautiful pin candle but for me the stop was too large and I wanted the pullback to make the stop a bit safer. As I mentioned in my forex commentary on Sept 5th the hourly close below the daily lows on Monday would change my bias to short and with that nice of a stop run it would have been great if I could have gotten a long entry but it never came. Good job to those members who took the trade and made some pips.

Looking at the daily chart I am a bit concerned that we didnt see the close above last months highs but resistance there is to be expected on the first attempt. If we can get the push through that level and close above it today there is alot of open space between it and the next potential resistance level and its a small break out level at 1.6060 so the potential for pushing to the yearly highs of 1.6300 is there. 

The first place to be looking for the long will be the 1.5880 level where breakout support lies. If the manipulation pushes further than that the next level will be the Asian session highs of 1.5874 but these levels are close enough that I consider the 80 psych level to be holding if we get a rejection around 74

Forex News Today

As we should all know we have the rate decisions and press conferences from both the BOE and ECB today so most of the other news will be overshadowed by these. However there is a couple to note because if they miss dramatically there will be movement as the markets will see the chances of QE being a higher or lower probability.

They are the US Unemployment Claims and ISM Non-Manufacturing PMI. A big jump in the Unemployment figures will add fuel to the fire of more QE while the PMI data is of less consequence a big improvement will lessen QE hopes and a disappointment will have the opposite effect. Lastly lets not forget ADP Nonfarm Payrolls. This is expected to drop and from what I have been reading has more potential to disappoint than surprise to the upside. Even though its not the big NFP tomorrow it will be reacted to if there is a big miss.

Today I leave you with some excerpts from an article I found that is well worth the full read here. Its titled  

Now That The Easy Stuff Has Failed, All That’s Left Is The Hard Stuff

Here is the easy stuff that’s already been done:

  1. Paper over every problem with trillions of yuan, euros, yen, dollars, etc. Print it, borrow it, conjure it electronically, but flood the vested interests with essentially “free money” to stop the political pain caused by vested interests screaming as their slice of the swag is threatened by financial collapse.
  2. Twist, bend, fold or break the rules to insure the flood of free money flows to all the vested interests. “Rules are made to be broken,” especially in legal systems in which the Central State and its regulatory machinery have been captured by vested interests. 

 ”When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.” Frederic Bastiat, 1850 (via Scott)

That describes the easy part: surrendering to the vested interests. From the point of view of the vested interests, what was the point of buying political power other than securing and protecting our interests in times of crisis?

Politicians and the Federal Reserve responded to the pain of their financial Overlords by ignoring both prudence and the rules as they fell over themselves to shovel free money to the vested interests. The trillions of dollars were borrowed from future taxpayers, of course, but who cares about them? They don’t even vote, much less give campaign contributions.

This disregard for the future and the fundamentals of fiscal well-being is about to reap consequences. The Powers That Be counted on “time healing all,” as if the mere passage of time would magically heal a broken economy and political machine.

Time heals all–unless you have an aggressive cancer. We have multiple aggressively metastasizing cancers–moral, political, demographic, technological and financial. The Status Quo has chosen to ignore these fast-growing cancers because it was politically expedient to quiet the powerful vested interests with trillions in bailouts, backstops, free loans, guarantees, “stimulus spending,” and so on.

That was easy to do, but it didn’t fix anything.

Now the hard stuff will soon be coming to a theater near you. How long it will take is the question at hand.

Happy trading


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