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Forex Daily Analysis EUR/USD, GBP/USD October 18, 2012

Today on the EUR/USD we more than likely have seen the third push. The 3 lines you see on the chart below are exactly the same length. Since they are well beyond what we would consider a normal push of 90+ pips then the attempt to make the third push of close to equal length does hint that they may be done here. However the topping formation that started during the Asian session did fail, as we did get a higher close during the US trading session today. That doesn’t necessarily mean it’s going back up but just that we can’t rely on that particular topping formation as a clue on direction.

Today I will have a small bias for the short from those highs at 1.3137 but if we do see an hourly candle close above that level then the chance for the push to reach the next major resistance level of 1.3177 increases substantially. If we do get the initial push down today before London open I will be looking at the price action at that level for the potential long entry. I should also mention that there is the possibility for the long from Tuesdays high/Wednesdays low if it gets there. Of course I would expect a bounce there no matter what and if I am short I will be holding until I see a clear trap there at 1.3055.

Disclosure: I am short the Euro from the US session at 1.3126 and have moved my stop a little early to break even at +18 pips. If it comes back to get me that’s fine.

1 Hour Chart of the EUR/USD from October 18th 2012

The GBP/USD followed my slightly bullish bias from the Oct.17 forex commentary quite nicely with one exception….it never provided me with an entry. As you can see on the chart below where the candle is market with an arrow. That hourly close tells us that there is conviction to the buy side as it closes above the previous days highs. When I was covering this in the live forex room session Tuesday I also said that when we see the next hourly candle form the typical reversal pattern we look for, then it does make the trade more risky.  However moving down to the 15 minute chart we also see that there is the beginnings of a very nice trap move at the bottom of that bearish candle. Like I said the only problem is considering the engulfing candle pattern on the hourly chart I was waiting for the pullback that never came before it moved off almost 60 pips. I know a few caught this trade so good job on that…it was however just a bit more risky as the entry was taken without any pullback.

Today we do have the topping formation in the GBP/USD that has formed nicely. After this topping formation the Pound made a full retracement of London’s move to the upside. I do expect the current support level the Pound is on to hold during the Asian session. More than likely the Pound will test the break out lows from the US session at 1.6144 before moving down. If we do see that test then the hourly close below the Asian lows, that will be a bearish signal and I will be looking for the short. If for some reason it starts trading into the chop of the US session yesterday than the best opportunity for the short will be at the highs of 1.6176. Even though the pushes still are not very clear I am treating this as the third push chop and keeping an open mind and looking more at the price action.

This is a 1 hour forex chart of the GBP/USD for October 18th 2012


Forex News Today

Scheduled releases are not all that busy but we do have some major events that will likely create opportunities for manipulation. Starting with a bunch of Chinese data this morning. I’m not going to cover them but did want to point out that these releases will likely be the make or break of my Euro short.

The Euro Zone has yet another summit so we can expect the usual tape bombs. From what I have been reading they will be discussing Draghi’s big fix all with unlimited bond purchases. There has been reports that some EU legal counsel has determined that without changing the treaties within the EU the bond purchasing and banking supervision programs are illegal. So what I expect is some legal “mumbo jumbo” trying to squirm around the subject trying to ensure everyone that its within the ECB mandate when we all know its not. More on this later.

There is also a 10yr Spanish bond auction. This one is up in the air. Yields have been falling so this does have potential to go off well but I think it has about the same chance of big disappointment. We will have to wait and see.

The UK has Retail Sales figures expected to get better. A disappointment will be GBP negative as it may push one or more of the MPC members to want more Asset Purchases and will have the opposite effect if its better than expected.

The US has weekly Unemployment Claims and Philly Fed Manufacturing Index. the more watched will be the Philly fed figures. With the surprise last month to the upside its expected to get into positive territory and if it does another surprise upward then we will see the USD gain.

EU Banking Supervisor Illegal?

When I was talking with sterling the other day I asked him if he noticed that the tape bomb news coming from Europe has slowed to a trickle. He didn’t notice and I wasn’t surprised since he don’t follow the news like I do. Of course this is most likely largely due to Obama telling Europe to stall the implosion until after the election and promised to work a miracle of his own for Europe. Like the US dont have a massive problem of its own I wont discuss here. 🙂

Here are some interesting excerpts from Zero hedge and the Financial Times. It would sure seem that if a lowly forex trader like myself can figure this stuff out with the limited resources I have than these big boys at the top surely know. If not and I happen to be one of the few that get it and I am truly one of the smarter people in this world. The world is in BIG TROUBLE 🙂

This from Zero Hedge

While we have largely resumed ignoring the non-news flow out of Europe, as it has reverted back to one made up on the fly lie after another, or just simple rumor and political talking point innuendo in the most recent attempt to get hedge funds starved for yield (and chasing year end performance) to pursue every and any piece of Italian and Spanish debt (at least the until euphoria ends and the selling on fundamentals resumes) the latest development from the FT bears noting as it has major implications for Europe’s make it up as you go along “recovery.” According to the FT: “A plan to create a single euro zone banking supervisor is illegal, according to a secret legal opinion for EU finance ministers that deals a further blow to a reform deemed vital to solving the bloc’s debt crisis. A paper from the EU Council’s top legal adviser, obtained by the Financial Times, argues the plan goes “beyond the powers” permitted under law to change governance rules at the European Central Bank.” The punchline: “The legal service concludes that without altering EU treaties it would be impossible to give a bank supervision board within the ECB any formal decision-making powers as suggested in the blueprint drawn up by the European Commission.”

Keep in mind this has been Germany’s position all along, which has absolutely no intention of handing over supervision of Deutsche Bank (whose ongoing bailout this is all about), to the ECB. But more importantly, recall that the ESM as a bank recapitalizing CDO mechanism can only work under an active banking supervision regime, which in turn means that the uber Deus Ex Machina, that of recapping insolvent and locked out banks directly and bypassing the ECB’s direct debt purchasing using a third party surrogate instead, will not be possible. This is bad news for Spain, but the country is still celebrating its “Schrodinger” status of a country which is both investment grade and needing an imminent bail out any second now.

And from Financial Times

Those non-euro zone countries that want to opt into the bank supervision regime would also be legally unable to vote on any ECB decisions – a key demand of countries such as Sweden and Poland.

While it is common for lawyers from different EU institutions to disagree on aspects of proposals, diplomats involved in the talks said the sharp difference in legal opinion would complicate efforts to overcome the deep-set concerns of some member states. Banking union will be a central topic at the EU leaders summit on Thursday.

While EU leaders are still aiming to agree the supervision plan by the end of the year, talks have made little progress to date, in part because of strong German objections. Some participants privately suggest the talks may drag on for a year or more.

Other elements of the commission proposal were also challenged in the legal opinion, notably in asserting the rights of member states to decide how rules on their banks are applied, even when under the supervision of the ECB.

“The major question that follows from this opinion is a practical one,” said Alexandria Carr, a former UK legal adviser now at Mayer Brown International.

“Will the ECB have the capability and capacity to be the ultimate decision maker in respect of all supervisory decisions over complex, global institutions and to apply at least 17 different pieces of domestic legislation?”

After the US election things are going to get interesting fast.

Happy trading


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  1. KingPip
    KingPip October 18, 02:58

    I took the euro short too…..I decided to just book +25 pips on it though. I’m thinking we are going to make a stop run of the high before the move down so I want to play it safe. BTW thanks for all the work you put into the commentary everyday….it is the first thing I read before I begin trading each day….see ya in the room!


    Reply to this comment
  2. Lukas
    Lukas October 18, 04:47

    Thanks for the commentary. Could you elaborate slightly on the rules for entering short on EUR ?

    Reply to this comment
  3. Goran Inno
    Goran Inno October 19, 12:46

    Thx for these. What time do you release these commentaries?

    Reply to this comment

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