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FX Daily Commentary EUR/USD, GBP/USD July 2, 2012

The EUR/USD has made a significant jump as we all know due to the grand plan to have a plan to fix the Eurozone. It is showing 2 clear pushes for almost 300 pips and I will be expecting the third today but I will be happier to see a deeper pullback into the 1.2600 level. It is quite possible that it finds support at the 4hr 200ema here and if Asia cant break it then that may be where the stop run occurs today. Whether or not it will break the highs is a different story but I do expect this optimism to last a little while at least. Having said that I should point out that the half life of such events are getting shorter and shorter and this one may only last a day or two. I must admit that the fact that Germany has been perceived to be the one who blinked and gave in to the demands of Spain and Italy the blow back will surely be seen in coming days or weeks.

The GBP/USD is in a similar situation with 2 clear pushes and is now testing top of the 4hr 200ema also of which is the area of daily highs form Tuesday last week. This would be a good place for this pair to hold since it is a heavy support area. If price just holds here for the Asian session (which I doubt) then the stop run into that area will be what I look for first. A more likely scenario is that we get the pullback into the Asian range and stop run later in the London session before the next push up. There is potential for this next push to fail since the BOE is possibly adding to the Asset Purchases later this week so I wont be holding for a long run if I do get an entry long.

Forex News Today

Scheduled releases are somewhat light today but we do have a busy week ahead. From the EZ we start off with just Italian Manufacturing PMI which shouldnt create much action.

The UK has their Manufacturing PMI. This would be a good time to be looking for the manipulation for the trade on the GBP/USD. It is expected to improve slightly but still well below the 50 expansion level. A surprise to the downside will give more expectation of the 50 billion addition to the Asset Purchase facility.

The US only has its ISM Manufacturing PMI release early in the NY session. Expectations are for a drop but is still well above the 50 level. Any surprise to the downside will get a decent reaction from the markets as that will show the US is slowing and there will be more anticipation of QE.


Really? Not so fast.

People may think all is well now and Germany has opened up the coffers but I tend to agree with a few who think Merkel has just side stepped and will leave it up to the German courts and people. The chance for a referendum in Germany just went way up. Here are some points from a Spiegel article last week.

German Finance Minister Wolfgang Schäuble kicked a political hornets’ nest when he suggested to SPIEGEL that a referendum on efforts to save the euro will have to be held sooner or later. German commentators jumped into the debate on Tuesday.

Merkel immediately distanced herself from Schäuble’s comments, saying through her spokesman Steffen Seibert on Monday that any such referendum wouldn’t be coming any time soon. But several other politicians indicated their support for the idea, including Social Democratic bigwig Peer Steinbrück and Patrick Döring, general secretary of Merkel’s junior coalition partners, the Free Democrats. Steinbrück told the Stuttgarter Zeitung on Monday that “if you have been listening carefully to the Federal Constitutional Court, you would realize that there is no way around” a referendum.

Indeed, the decision over a referendum may ultimately not be a political one. Germany’s Constitutional Court, the highest in the country, has recently indicated that the limits of the country’s constitution have been reached when it comes to efforts to save the common currency. Already, the court is fielding several legal challenges to the European Stability Mechanism (ESM) and last week it controversially asked German President Joachim Gauck to delay signing the law until the court could fully examine the challenges. Last September, Constitutional Court President Andreas Vosskuhle said that further European integration would require a new constitution, making a referendum unavoidable.

It seems to me that Merkel has made a strategic move rather than really given in. This should be an interesting month.

Today I will leave you with yet another Charles Beiderman rant. In this short video you can see that he is a bit perturbed with an article that said the Euro would be better without Germany. Although I do agree that the best chance to buy enough time to get the structural reforms done that the rest of the EZ needs would be without Germany pressuring the ECB and holding up the Euro. Charles does make a few good points here on how bonds for the countries would jump and they would be even closer to default. I have never seen this guy this riled up hahaha.

Happy Trading


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