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Forex Market Daily EUR/USD, GBP/USD, EUR/JPY Commentary May 24, 2012

All I can say about the EUR/USD is WOW. The weakness was worse than I expected as of yesterdays commentary. That yearly low was only hit once and then the next test was not just a test but a clean break and daily close below which tells me there is more to come. It made it all the way to the 1.2550 area before it got some reprieve and pulled back around 50 pips. Of course I did manage to catch the New York Reversal set up for 40 pips but closed a bit early since I was expecting that area to hold for at least one more day. Still did well on the day but definitely could have been much better.

All things considered I feel its best to keep and open mind on direction today. Looking at the hourly chart we have 2 clear pushes down and would normally expect the third. However these pushes have cleared the better part of a 300 pip move and we are making fresh lows so the chance for a pullback is there also. Of course my fundamental bias is down but that wont close my mind for a long position in this case.

The GBP/USD is in a similar position with 2 clear 90+ pip pushes to the downside and the third is the higher probability. I somewhat expect the same action we have seen of late and this pair moves slower while the EUR/GBP moves with the EUR/USD up or down. Eventually I do think it will play catch up with the Euro but we will probably need more negative data and thoughts of more Asset Purchases from the UK to see it.

The EUR/JPY looks primed for the reversal as we see 3 somewhat clear pushes for over 200 pips. It has breached the 100.00 level and managed to close above it for the day showing some good support of that price and withe the USD/JPY hovering around 79.00 and the BOJ starting to step up the verbal intervention this could be a good reason for a decent pullback. not that I dont feel its destined to go lower but the chance of it doing it now are lower than later in the London or US sessions or even tomorrow after a pullback.

Forex News Today

We have a slew of news from the Euro Zone today with both Services and Manufacturing PMI figures from France, Germany and the EZ as a whole. There also is German Final GDP but that isnt supposed to be high impact like the PMI releases. The issue with all these is that even with the dismal numbers released last month they all have been revised lower and expectations seem a bit optimistic considering the revisions. These could be what forces the Euro to break down if they disappoint in a big way. We also have German Ifo Business Climate that is expected to drop slightly also and if it does then it will show Germany is feeling the recession creeping up on it. Lastly late in the day during the US session there is a Draghi speech and Belgium NBB Business Climate. The bigger being Draghi talking. I assume the market will be looking for any hints of a rate decrease or the ECB loosening up for more LTRO or full blow QE. I have my doubts that will happen considering Germany is holding tough but there is the slight possibility for a signal for a rate cut.

From the US we have Core Durable Goods Orders and Durable Goods Orders which both have a chance for a surprise upwards considering most durable goods are household items and the New Homes data released yesterday was a surprise up by 8K showing more new homes were bought and these homes will be needing new appliances. There is also the weekly Unemployment Claims that is expected to rise slightly. If this surprises up then we could see a risk off scenario or the USD get weak as thoughts for more QE could come in. I would be guessing on market reaction at this point. Lastly we do have some dribble from FOMC Member Dudley. If I remember correctly hes a dove and the market will look for changes in his stance for QE.

The Plunge Protection Team at Work? 

Yesterdays pullback in equities after smells to me like the Plunge Protection Team was earning their salt as they would not let the Dow or S&P have the down day they should have with risk falling off a cliff and the Euro plunging to new 22 month lows. So I thought I would shed a little light on who they are for those that wonder why moves like this happen. It took me awhile sifting through articles to find what I was looking for but of course it was there from one of my favorite news sources Zero Hedge. This is an article from back in 2009

Even though our good Samaritan friends at One New York Plaza may take offense to this designation, the trading desk that controls the formerly free world is not located anywhere on the premises of Goldman Sachs, but is instead situated on the 9th floor of 33 Liberty Street, also known as the home New York Fed. From a trading desk cluster at this location, 39 year old Brian Sack controls the uber-secretive money flows that determine the daily fate of credit, equity and virtually all other markets, that have now been subsumed by the government’s central planning ambitions and aspirations to determine each and every uptick in the increasingly more irrelevant S&P 500.

Reports the WSJ:

 Mr. Sack, 39 years old, is an economist who runs the markets group at the Federal Reserve Bank of New York. The group runs the Fed’s trading, making it the bridge between the marble corridors of the Federal Reserve in Washington and the bustling trading floors of Wall Street.

 The center of life in the markets group is a glass-enclosed conference room situated next to a small cluster of trading desks on the ninth floor of the New York Fed. It overflows with people for a daily 9:20 a.m. meeting run by Mr. Sack. A few stray pictures of Alan Greenspan, the former Fed chairman, still hang on pillars nearby. The markets group grew enormously during the crisis, from about 225 employees to 400 people who monitor the markets for the Fed, manage its portfolio and run the many new trading programs it has started. The Fed holds more than 20,000 individual securities.

It appears, that aside from buying and selling Treasuries, and buying (not selling – need another buyer when selling something) MBS and Agencies, as well as the occasional stock (we jest, the Fed would merely allow banks to buy stocks, at no cost, courtesy of money it lent them from the Discount Window and the PDCF), Mr. Sack is the person responsible for the recent failed reverse repo test, which Zero Hedge documented extensively first. 

Happy Trading


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  1. Francisco
    Francisco May 24, 01:51

    hey chad,

    the asian session is very slow.. Im trying to find those setups, but not yet… what’s happening with the SM?



    Reply to this comment
    • Chad
      Chad May 24, 02:05

      Yes that is typical Franscisco. The best thing to do is trade the most liquid pairs during Asia which are the Eur/Jpy, Gbp/Jpy, Aud/Jpy and Aud/Usd and look for the candle formations at S/R and trade with the SM trend when its clear. There were nice moves on the EJ and GJ during Asia yesterday and did have nothing but follow through during London and US. Hope this helps buddy.

      Reply to this comment
      • Francisco
        Francisco May 24, 02:09

        absolutely! I made nice profit sending lower the USD/JPY yesterday about 9:00 PM CTS. This was a good trading with the SM.

        thanks chad!

        Reply to this comment
        • Chad
          Chad May 24, 02:14

          Nice! Glad to hear it. Trading Asia is a bit different but it surely can be done. Just keep in mind the news that effects those markets also. Japanese, Chinese and Australian data are the ones to watch. If I do trade Asia which is rare I like to use the correlation of all the Yen crosses and when they all agree its a vrey high probability trade. I look forward to hearing more good results from you. Good job

          Reply to this comment
  2. James
    James May 25, 11:04

    Hi Chad.

    Another great commentary again. Is it possible for you to mark (or show the price-point and time) which mark the different pushes that you mention in your commentary?? I’m still finding it a little difficult to ‘clearly’ see the pushes – so any assistance you could provide would be great.

    Thanks again. Keep up the great work guys!


    Reply to this comment

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