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Forex EUR/USD, GBP/USD Daily Commentary August 27, 2012

Here we are starting the last week of August so next week we should be seeing more of the new normal markets with the summer doldrums being over. I will be much happier then for sure.

Last Friday we saw the third push in the Euro take precedence and drag the GBP/USD down with it rather than the Euro be dragged up while the GBP/USD made its third push so this week we should start to see the next pushes downward. As I said in the Aug 24 forex commentary we had to treat them as in the third push chop and even though there wasnt a clear entry during London the New York reversal played out nicely. I was glad to see that several members caught that trade even though one did manage it terribly. We wont mention any names though haha.

Since we are starting to see Asia move price south already so we will have to wait and see how price finishes the Asian session. If we do see it at the lows of the day then I will be looking at the Asian highs for the manipulation today. I would prefer the pin bar during the US session Friday but we may not see that if we end Asia on the lows. As of now we have seen the Euro test the 15min 200ema at Thursdays lows last week and get rejected but I will need to see the stop run or trap move there to take the entry if its the Asian high today. Since we are in a third push chop scenario a long at Fridays lows is an option but it will need to be a clean manipulation for me to enter there.

The GBP/USD is in a similar situation with a first intraday push to the downside for over 100 pips from the highs so the probability is higher for the second today. Its not as though we are trading the longer term pushes yet though. However we have just had an hourly close below the lows of Friday which shows weakness. the only thing that would chance that is if we see the hourly reversal legs that would indicate a stop run. If so we will most likely get a pullback to the US session highs or daily lows from Thursday last week before we see a good trap for the short. If there was going to be a good long opportunity I would be expecting it at the 1.5800 level we are at right now but due to the hourly close below support we are looking at I wont be taking it right now.

Forex News Today

Scheduled releases are light today but we do have the all important German Ifo Business Climate expected to be declining yet again and barring a surprise to the upside should be Euro negative as there has been nothing lately that would show any sort of improvement of the business climate in Germany. The chance for a disappointment is higher.

The US does have FOMC Member Pianalto Speaking later in the day and we may get some insight into what Bernanke has planned for the Jackson Hole meeting but I have my doubts. We will most likely have to wait for Ben to bumble through that this Friday and Saturday.

Lets Have a Monday Rant

I know its early in the week for a rant but something got me stirring over the weekend and  I felt compelled to share it with you.

When this whole financial crisis started in 2008 I thought to myself “good we are due for a correction, some deleveraging and separating the wheat from the chaf so to speak”. I thought this can only be a good thing even though its not going to be a fun ride. We sometimes have to travel over the rough seas so we can get to our paradise island retreat right? That may be a little drastic but you get the point.

Well I couldnt have been more wrong about this one. The fact is the powers that be have too much to lose and they dont see things the way a normal person with common sense does. Which goes to show the old saying of “common sense is not that common” is true even at the highest levels of education and government. Especially government and finance or we wouldnt have been here in the first place.

I came across an article about how Iceland did it right and everybody else did and is still doing it wrong. I couldnt agree more. Lets not forget however that Iceland wouldnt be such the pretty picture if everybody did what they did and let the banks fail. They benefited from the rest of the world bailing out the big boys but never the less it was the right thing to do. Sure if the boneheads in the US and Europe pushed the reset button like Iceland then we all would have went through it together but I firmly believe that the world would be much better off now if they did. The way I see it like many others do is they have only made the pain of the eventual reset more worse by bailing out the banks and leaving the man on the street hung out to dry. Below is an excerpt from a podcast interview Chris Martensen did with Keith Fitz-Gerald called  The Perils Of Underestimating Complexity And Mispricing Risk. this pretty much says it all but the podcast is well worth the listen.

This is the thing: let some of these things fail because when failure occurs you have an asset redistribution. The faulty assets are, in fact, bled out of the system. The quality assets are assumed by responsible parties. That is the law of capitalism. That’s the way it works.

So if we think back to the credit crisis and we think back to what happened in 2007 – 2008 they went screaming and yelling to congress, “Oh my goodness, we’re going to have to do this or the sky’s going to fall!” Well, the sky fell anyway. They pumped $700 billion into this, then a couple $ Trillion. Well, if the government multiplier that all these conventional economists talk about actually worked our economy should be screaming along at six or eight percent right now, but it’s not.

And the reason it’s not is because it’s a complex system and despite all the pushing and pulling they’ve done on one end, they didn’t understand that all these other things would happen at the other end. Too big to fail? It’s not too big to fail; it’s too big to survive.

We have monopoly laws that we should have been using along the way but our regulators were asleep at the switch. They’re out manned, outdone, outclassed, at every turn of the road. Wall Street does not want to do anything that remotely resembles reigning itself in and it has no incentive to do so.

It sure as hell is not the free market that everybody likes to think it is. And that, to me, is extremely disturbing because they have removed the hand of risk from the marketplace and these businesses now have every incentive to screw up because they know that a) they won’t be held accountable for it and b) they’re going to get bailed out.

They have put so much debt onto this that our unborn great, great, great, great, great, grandchildren could not possibly pay this off. The only way they’re going to get out of this is to deleverage it and remove it from the system.

Will they ever get it right? I doubt it but the time when there is no choice is coming soon to a theater near you.

Happy trading


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