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Forex Daily Commentary EUR/USD, GBP/USD April 17, 2012

Hi everyone. As I look through my news this morning to find any purpose for the 130+ pip rise in the Euro I could only find one of which I will cover in a minute. I know Sterling mentioned in his Daily Market Review that with the drop during the Asian session there is a possibility for the deeper pullback but to be honest I didnt expect 130+ pips. Now for what caused this is really kind of simple because it wasnt the news. Retail Sales was not that good and with disappointments in manufacturing and TIC data the small jump in retail sales should have been muted and it was really. So what happened? The most simple way I can explain it is Europe is in trouble and with so many banks on review by the credit rating agencies they are doing their best to stock up on cash (Euros). In order get this cash they have to sell US stocks and treasuries and repatriate these Euros. So in effect as they sell these assets and repatriate they are selling USD and buying Euros. So at this point this run up could be short lived or may continue based on this same premise. Its hard to tell. Things like this are the reasons I pay attention to the news not so I can preempt such things but I do know there is a reason for unexpected movements and its not always the manipulation as it usually is. The clearest oppertunity was on the Yen crosses rather than the EU and I took the GBP/JPY short  with 2 positions that gained +25 on one and +32 on the other as they it came back and hit my profit protecting stop. Also Sterling caught the stop run reversal on the GBP/JPY off the lows. You can find the video in the recent day trades section.

So here is where we are at today. The EUR/USD has pulled back into the range after a 3 push intraday drop and done it in 3 pushes also. (easier seen on the 1hr chart) Here is where the reversal has a higher probability as at the 3rd push up it has closed on its highs and we do have a topping formation on the 15min. This is still 3rd level trading guys so in the middle of this range is a riskier trade. If you trade this be sure to have at least a few confluencing factors in your favor. We are hovering around the 200ema on the hourly chart so at this point I would like to see the Asian range close below this and see the manipulation up to it and the trap move to short from there or around yesterdays high. Having said that with the possibility of more repatriation this may be a pair to stay away from for now.

The GBP/USD is a bit clearer and moved substantially less yesterday and looking at the 15min chart has closed the inefficient move from Friday and has the same 3 pushes up and topping formation on the 15min chart. This pair will be my preferred pair to trade today given the situation with the Euro.

In the news

The news is rather busy today starting with CPI and RPI numbers from the UK which are expected to have little change. A surprise to the upside in either of these  mainly CPI will have an effect on any more potential adding to the asset purchase facility. The opposite for a big surprise down of which I thing the former is more likely. The UK does have a MPC member speaking late in the day but I dont expect much reaction as its right at the end of the London session.

The Eurozone data has German economic sentiment, CPI, Core CPI and EZ economic sentiment all released at the same time with the sentiment numbers expected to drop slightly and CPI figures expected to remain that same as last month. What I will be looking at most is the CPI numbers mainly because the economic sentiment is bound to be bad considering the situation in the EZ but if inflation surprises to the upside then the Germans are going to be a bit upset and will start putting more pressure on the ECB to keep from monetizing debt (buying PIIGS bonds) and the potential for any more LTRO will go down. Then to top it off for the EZ. Draghi is speaking at the start of the US session which should be interesting.

The US session has more housing data with US building permits, Housing starts and later the Capacity utilization and Industrial production. The housing data will be more important considering that in order for the US to have a real recovery the housing market has to bottom and start to gain footing. Something of which I personally feel has a bit of room to the bottom but we will see.

Happy Trading



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