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Forex EUR/USD, GBP/USD Commentary October 16, 2012

The moves on the EUR/USD yesterday show we are more than likely going into a 3rd push chop scenario rather than having a clear direction. At this point it looks more like the push down during Asia was more than likely a head fake in technical terms. The way I see it is more than likely the drop was due to nothing being worked out over the weekend with the IMF meetings and then just before the European markets open there was the tape bomb of Spain getting ready to ask for the bailout in November along with news that the Troika are more than likely going to give Greece another 2 years to finish reforms they promised 2 years ago and haven’t done much of anything as of yet. To be honest no one can ever say for sure and at this point we just have to play the cards dealt to us.

Today I will be keeping my bias open and looking for the manipulation at key levels which are the double top at 1.2990. I would expect a test and stop run into that level for a short. there is also a daily trend line not far above at 1.3015 which could get tested also. If we dont see a clear trap at the double top then the short from the 1.3015 level has even higher probabilities being a major psych level with the daily trend line. A clear hourly stop run will have the best chance but we may see the trap move on the 15 minute chart as well which will increase our odds substantially.

1 hour EUR/USD Chart on Oct. 16, 2012

The GBP/USD is in a similar situation having gone into a chop but has its support holding rather than a head fake. This gives me a little more of a bullish stance but no so strong I wont consider a short today. As I did mention in my October 15 forex commentary the GBP/USD has quite a bit of room to the upside if we can see the break of these highs. There is really nothing but daily highs to slow it down at this point. The next significant levels are the highs from Oct. 4th and 5th around 1.6200 once it breaks the daily break out resistance level we are sitting at right now.

The level I will be looking at for a long will be the hourly 200ema but I will want to see the hourly close above yesterdays high to confirm the momentum. Right now we are seeing yesterdays high hold during the Asian session and showing the beginning of a trap on the 15 minute chart so there is a possibility that this level hold. It will be a riskier entry short during London but with a clear stop run to this level it will have a good chance. I would be more comfortable with a short from Fridays highs but we rarely get exactly what we want from these markets. 🙂

1 hour GBP/USD chart on Oct. 16, 2012

Forex News Today

Scheduled releases do look to be rather busy today but as I look through them there are only a few of note. The UK starts of with CPI, RPI, PPI etc. but the fact is inflation figures from the UK haven’t really meant much as of late due to them being tolerant of higher inflation rather than it effecting monetary policy. If there is a surprise to the downside in the CPI figures then it should be GBP negative as it opens the doors to more Asset Purchases. The one to watch will be the later release of BOE Kings inflation letter. Any clues to adding to the Asset Purchase Facility will definitely be GBP negative.

The Euro Zone has German ZEW Economic Sentiment expected to improve but still in much negative territory. I don’t expect a big deviation here and the way I see it is the chance for the surprise to the downside is higher. They also have EZ ZEW Economic Sentiment and  inflation figures but I don’t expect much from them either. There should be no surprise that economic sentiment is not good anywhere in the EZ if Germany is in such negative territory.

The ones to watch for the US are Core CPI and TIC Long-Term Purchases. Well you can scratch the inflation data because these numbers are so fudged that they never make sense to the man on the street and they are no where near a place where the Fed may take some action on them so the TIC data will be the big one. Expectations are for a drop of over 20 billion. If this comes out as expected or worse then it will show that foreigners are getting leery of the fiscal cliff coming up in the US and are steering away from US assets. Who could blame them but the reaction will most likely be USD negative.

More On Spain

I have mentioned in several other commentaries and many others agree that Spain is Greece times 10. Using a conservative number. Its probably much higher.

What I find rather funny is the news that Spain is getting ready to ask for the bailout. yes they are under enormous pressure from the EU to take it but as I said before, I highly doubt they will do so until they are closed out of the bond market by interest on their 10yr bonds getting above 7% for an extended period of time. Every time we see this news their interest rates drop and they have less incentive to ask for the bail out. On top of that once they do ask and the Troika crawls up their financial but to discover just how bad they have been lying and cooking their books the bailout has a very good chance of breaking the ESM fund by its self when all is said and done. Not to mention Spain is actually on the hook for a substantial part of that said fund. Now to top that off. The ESM is only funded partially by contributors who have merely made promises to make payments into the fund. Of which the first deposits were due last week. (I havent seen anything yet on if they were actually made)

The question that remains where will they get the rest of the funding which amounts to about 80% of the 500 billion Euros the fund is supposed to have at its disposal. Yes they are going to sell bonds. Lets forget for a second that this ESM fund is being challenged by many as a treaty breaker that funds EU member deficits because that will probably get swept under the rug. The next question is who in their right mind will buy these bonds. You would have to be nuts to buy these bonds and lets not forget how well the EFSF bond sales went. Can we all say NOT together? Yes Japan did just come out and say that they “may” be willing to buy ESM bonds but lets remember that China did the same with the EFSF and had to back out when they realized they would lose their shirt just like they did buying other EU sovereign debt just a year before. The fact is not much has really changed structurally in any of the EU countries and this is where the problem is. Its not the Euro that is the underlying problem. Yes its a small part but it is the fact that it was just a tool used by the powers that be in all the PIIGS countries to get richer at the cost of their populations. Until this structure changes there will be no hope for Europe. Not to say its much different in the US they are just using different tools to screw their population. 🙂

Now Greece

To be totally honest I found it comical that now the Troika is thinking that Greece will need 2 more years to enact the reforms. On top of that the ECB is most likely going to take the hit on some of the Greek bonds it holds. My question is why these boneheads couldn’t see that was needed at the first haircut (second bail out). It was pretty clear to me that when all these same boneheads were saying that Greece wouldn’t need a second bail out. (that we all knew was coming) The second one would need the haircut to make it workable. Ok that’s cool but none of the central banks took the hit. Only the public bond holders did. Why is that and why wasn’t that thought of at the first bailout? Are these people really that stupid or is it part of a bigger plan? Now only after the Greek population has rioted several times, the people are suffering immensely do they finally pull their head out of their butt and consider giving Greece a break on the debt they hold. Just today I read an article stating that they just made it legal to sell grocery items that are past their “eat by” date so Greeks don’t starve.

Don’t get me wrong the Greek population has to take some responsibility here but it really only points out that they have been made patsies by their own government. I also remember an article last week with a prominent Greek businessman saying “If we only had a government over the last 180 years.” How tragic it is to see the country that first developed democracy go down in this fashion. It makes me wonder if we are all destined to do the same because we let the few in power take advantage of us. Its a crazy world we live in.

Happy Trading


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