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FX Commentary EUR/USD, GBP/USD, GBP/JPY April 18, 2012

The charts of the EUR/USD and GBP/USD are somewhat clearer today with a 1st push up from the lows and then chop all day yesterday on the Euro. At this point I am more inclined to say it will make another push to the upside but keep in mind that we are still in a range bound market and the fundamental picture for the EZ is not much better. Having said that the economic sentiment were better that expected yesterday so the market has potential to ride that out which would agree with the next push up. The main key to trading in markets like we have seen lately is looking for the clear manipulation at the highs or lows of the day and trade along with it. If I see a clear stop run to the upside along with some confluence I will be happy to short considering that in choppy markets direction is harder to determine .

The  GBP/USD looks better with a clear 2 pushes up from its lows and I am expecting the third today. I will be much happier to see it test the hourly 200ema with a trap formation to go long this pair mainly for the same reason that its is in the same daily range we are fighting with the Euro. I am a little concerned that looking at the hourly chart here I can see 3 intraday pushes from the lows but considering the chop at the bottom there it looks to be more of trap at the lows rather than a first push to the upside as they hit stops to the lows and then highs before the first push for 90 pips so the probability still remains to the upside for today.

The GBP/JPY looks interesting also as we are seeing a 2nd push to the upside during Asia as I type. Its testing the daily highs from Friday and at this point I expect to see it have a pullback or consolidation area during the London session before it makes the break to the upside. With the USD/JPY on a tear today and having broke through Fridays highs it would seem a test down to those might be in order and then the Yen crosses could be off to the races upwards and if the GBP/USD and EUR/USD do as I expect today then the crosses will have a substantial move in them.

In the news

The scheduled news releases are fairly light today with the Current account figures from The ECB. Its expected to drop a bit but I have my doubts it will impact the market much today. Then later from the UK there are unemployment figures, MPC meeting minutes and Member Tucker speaks 30 minutes after the release of unemployment. The one to watch is the MPC meeting minutes for any clue that they will be doing any more adding to the Asset Purchase Facility. They did have pretty much as expected CPI figures yesterday so its a toss up as to any discussion on more QE from the BOE. There was some MPC talk over the last few weeks saying that its still an option but the Meeting Minutes confirming that would have a negative impact for the GBP.

The US releases are rather dull with just Crude Oil Inventories which rarely has an impact these days.

I did run across a link to an article I wanted to share with you last week concerning the fact that more Fed members are openly criticizing the Too Big To Fail banks and calling for their break up. As usual since these guys are not at the top of the totem pole they are mostly ignored but it is a step in the right direction since they would only whisper it privately before and now are acknowledging it publicly. Its a rather long article and you can read it in its entirety here  but here are some key parts that stuck out to me. Its definitely worth reading.

Fisher sent out the following letter in his official capacity:

Letter from the President

If you are running one of the “too-big-to-fail” (TBTF) banks—alternatively known as “systemically important financial institutions,” or SIFIs—I doubt you are going to like what you read in this annual report essay written by Harvey Rosenblum, the head of the Dallas Fed’s Research Department, a highly regarded Federal Reserve veteran of 40 years and the former president of the National Association for Business Economics.

Memory fades with the passage of time. Yet it is important to recall that it was in recognition of the precarious position in which the TBTF banks and SIFIs placed our economy in 2008 that the U.S. Congress passed into law the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank). While the act established a number of new macroprudential features to help promote financial stability, its overarching purpose, as stated unambiguously in its preamble, is ending TBTF.

They were a primary culprit in magnifying the financial crisis, and their presence continues to play an important role in prolonging our economic malaise. There are good reasons why this recovery has remained frustratingly slow compared with periods following previous recessions

I encourage you to read the following essay. The TBTF institutions that amplified and prolonged the recent financial crisis remain a hindrance to full economic recovery and to the very ideal of American capitalism.

It is imperative that we end TBTF. In my view, downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response. Only then can the process of “creative destruction”— which America has perfected and practiced with such effectiveness that it led our country to unprecedented economic achievement— work its wonders in the financial sector, just as it does elsewhere in our economy. Only then will we have a financial system fit and proper for serving as the lubricant for an economy as dynamic as that of the United States.

Here are some ways TBTF has violated basic tenets of a capitalist system:

Capitalism requires the freedom to succeed and the freedom to fail.
Hard work and good decisions should be rewarded. Perhaps more important, bad decisions should lead to failure—openly and publicly. Economist Allan Meltzer put it this way:“Capitalism without failure is like religion without sin.”

Capitalism requires government to enforce the rule of law. This requires maintaining a level playing field. The privatization of profits and socialization of losses is completely unacceptable. TBTF undermines equal treatment, reinforcing the perception of a system tilted in favor of the rich and powerful.

Capitalism requires businesses and individuals be held accountable for the consequences of their actions. Accountability is a key ingredient for maintaining public faith in the economic system.The perception—and the reality—is that virtually nobody has been punished or held account- able for their roles in the financial crisis

Now I am no hard core conspiracy theorist but seeing Fisher and many more like him addressing the issue and seeing the efforts to just get the TBTF banks on a leash of sorts has resulted in them actually getting bigger. This is a travesty in my mind and makes me give more credence to those that think the big banks are plotting to take over the world. Here is the proof from Blooberg courtesy of the Fed.

  Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the credit crisis.

 Five banks – JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc., Wells Fargo & Co., and Goldman Sachs Group Inc. — held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to the Federal Reserve.

 Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did during the 2008 crunch.

Seems as if the conspiracy nuts (AKA Sterling LOL) might actually have something here but I like to think of it in terms of this quote by somebody wiser than me I am sure. “Paybacks are a B!t@h”

Happy trading guys


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  1. alex123
    alex123 April 18, 19:52

    Great analysis on GBPUSD and GBPJPY but EURUSD is still chopping about, still 2 out of 3 is not bad at all. Wish I’d kept my long on GBPJPY from Monday as it would be up 285 pips now. That’s the markets for you, you know it’s there for the taking, it’s just getting your hands on it before it’s away without you!
    Thanks again,

    Reply to this comment
    • Chad
      Chad April 19, 00:14

      Thanks Alex

      Well dont feel bad buddy. I did catch 30+ pips on the drop in the Gbp/Jpy then exited and set a pending for the run up and it missed me by 2 pips before the 100+pip run. Talk about disappointment LOL

      Reply to this comment

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