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FX Daily EUR/USD, GBP/USD Analysis December 18, 2012

The EUR/USD this morning is in a precarious position. We should be expecting the next push up, however in an extended push situation like we have the reversal could come at any time. Without the smart money trying to push out weak holders with a false push in the opposite direction they are merely making extended pushes so once we see 4 consecutive pushes the probability we will see 6 in total goes down a little bit. It does happen but the likelihood is lower than if we have seen the false first push to try and force weak holders out of the market.

Looking at just the price action yesterday my thoughts are its going to turn here. The gap up and hourly close above Fridays highs holds less meaning than if it were during the middle or end of the Asian session. That is a low liquidity time of day and thinking that it represents conviction is not a good idea to me. Then the whole day it tried to penetrate Fridays highs and couldn’t close above it which tells me the move at the open of the day was most likely false which is why my feeling is its going to turn today. Of course I will need more than that to take an entry but you see how I am building my trade plan for the day.

What I will be looking for today is a clear hourly close above/below yesterdays range to give me a commitment on direction. The close below will tell me they are going short and above long….obviously. Yesterdays range is only 38 pips so the manipulation will most likely occur at yesterdays highs/lows after we see the conviction move. If they are going to make the next push up the trapping pattern will most likely be seen at the test of Fridays highs after we see the hourly close above yesterdays highs. That’s where I will be looking for a long providing I see the right price action. Either way if you take a stop run at the range highs or range lows you should at least see some solid follow through.

1 hour chart of the EUR/USD on Dec. 18, 2012

The GBP/USD  has shown its second push we were expecting in yesterdays commentary. However I noticed something this morning that makes me hesitant on treating this as a long only trade today. As you can see on the chart below there are 3 intraday pushes to the upside starting from the lows of the false push down last week so there is some potential for the turn here. Having said that my bias is still for the long since the longer term pushes are more accurate and when I look over at the EUR/GBP it has extended pushes to the upside and potential to turn just like the EUR/USD. The EUR/GBP also has a potential first push down which is why we saw the second push up for the GBP/USD while the EUR/USD chopped in a 34 pip range yesterday.  

The first place I will be looking for a long entry will be the lows of the US session at 1.6191. In order to be comfortable with a short position on this pair I will want to see an hourly close below the 1.6191 level and then a pullback and stop run above yesterdays highs of 1.6214 which is also a fairly significant daily level from October.

1 hour chart of the GBP/USD on Dec. 18, 2012

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Forex News Today

Scheduled releases are light again today with a couple big ones from the UK during the London session. We have their CPI figures expected to drop slightly. If we do get a surprise to the downside there may be thoughts of additional asset purchases which will be GBP negative. A miss to the upside will have the opposite effect since there has been concerns that the purchases they have done may lead to higher inflation. There is also the Inflation Letter later in the day and if its anything like the last one there will be a big reaction. What to look for is the statement on potential growth. This is what send shock waves through the market last time as they lowered the forecast substantially. Other than that if CPI does surprise upward then look for what is said about inflation. It could go either way today on this data.

The US has its Current Account figures late in the day and I dont expect much from it. Its expected to improve but without a large miss showing the US has imported much less and exported more it will be yet another sign that the attempts at killing the USD hasn’t really done that much for exports.

Happy Trading


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