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Fx Daily EUR/USD, GBP/USD Commentary September 7, 2012

Well Mario Draghi did it. He pulled out his Euro pump and gave it all he had just pumping away. However it seems like all the hot air just blew by the Euro and went into equity markets instead. The S&P, Dow, FTSE and other European markets are at their highs and some are at multi year highs. Great job Mario! We have given the can another good boot and all is well in Europe right. Well not so fast. Sure the buy side traders are having a hay day but I have a feeling this will be short lived and possibly even shorter lived than previous interventions. Although I must admit the rally in stocks is impressive.

Here is what I posted in our Skype group as the speech and questions started to roll in.

What gets me about the whole thing is that even when he made the big “we will do what ever it takes” speech there were conditions attached to these bond purchases. So even if he announces some BIG plan. When Spain and Italy dont ask for the bailout s&!t will hit the fan fast since neither one wants the same treatment as Greece. And by the way Portugal said yesterday that they will probably miss their deficite target by abt 2% LOL

And here was a reply from one of our members.

SUPER Mario: “We will do EVERYTHING possible….” Merkel: “Without me, there is no “we”….. SUPER Mario: “Yes, maam”, er, “within the ECB mandate, of course” …. Applause!!!!! LOL

Plus of course there are several smarter than me investors out there that feel the same way. We will get to that in a minute. Lets look at the charts for today.

The EUR/USD has made what I consider a second push up yesterday. The move up after the deep pullback does fall within the constraints of a second push since the ADR is below 90 pips. On top of that we have the hourly close above the highs of last Friday showing there is some conviction in where they are willing to push price. For now I will ignore the reversal legs that happened after that hourly close above that level but consider that those legs could mean a deeper pullback before the next push up. It seems as though Asia is jumping on the wagon so I am curious to see if they can make the push and hourly close above that level. I have my doubts and if they dont have the conviction I will be looking for the manipulation today at yesterdays highs around 1.2620 to start but we may see as deep as 1.2600 or even 1.2580. The clear trap move will be what I am looking to see. If for some reason Asia can make the break and close around yesterdays highs then the Asian range lows come into play be a higher probability of which is the 1.2620 level.

The GBP/USD is in the same situation but does have some clearer levels to look for the manipulation today. We have the hourly close above Wednesdays highs of the first push and even though the move yesterday was more anemic, since the ADR is only 74 pips the 60+ pip push does qualify. The potential for the deeper pullback is there too so the first place I will be looking for the long will be the breakout highs around 1.5913. There is potential of the psych level of 20 holding so I will be watching that during the Asian session.

Forex News Today

Scheduled releases are somewhat busy today. They may have a subdued reaction because it is NFP day today also but they are worth noting. Starting with UK Manufacturing Production and PPI input. Both are expected to improve and if they do come out as expected the chances for more BOE asset purchases will decrease and be GBP positive. later in the day there is also NIESR GDP estimate but its likely to be muted since its after NFP

The Euro Zone has German Industrial Production expected to improve but only be slightly above zero. Considering the better than expected Factory Orders yesterday this does have a chance to be better also although I would expect just slightly.

The US has the all important NFP figures and with the ADP Nonfarm numbers being better than expected there is a slight chance this will be too. However keep in mind that the ADP figures are notoriously way off the Friday NFP more than 50% of the time so I am not holding my breath. At the same time of course is the Unemployment Rate expected to be unchanged. If for some crazy reason we get a surprise here there will be movement. A lower rate will hurt QE chances and be USD positive and a pop up will be negative as QE has a better chance of being seen.

Back To The Verbal Intervention

Is there any doubt in any ones mind that we live in a centrally planned world at the moment? What I mean by this and there are many that agree out there is that the Central banks around the world are pretty much going USSR on us thinking they have the fix all for the supposed free markets. This is like trying to mix water with oil. It just dont work and has been proven several times throughout history. The USSR is one of the most recent  examples. What happens when you mix water and crude? No matter how you shake it eventually the dirty crap always floats to the surface where it is most dangerous to the environment. I think you get the correlation.

So here we are with Super Mario and his verbal intervention. Some may ask why I say its only verbal and the reason there is a good chance nothing will happen at all in the future. Personally I think they will eventually do something but it will more than likely have the same or lesser effect as the last few interventions of the ECB. This excerpt from an article from Zero Hedge explains it well.

The ECB & Conditionality

Any action by the ECB will be telegraphed well in advance because of it; if anything happens at all. The ECB has now said that it will do nothing, not anything, without a country applying for assistance and without the agreement of the Stabilization Funds which means that the EU and perhaps the IMF will have to agree. To accept any application from a country then that nation will be audited as part of the process. Bear in mind that now when a country submits its numbers to Eurostat or to the Bank for International Settlements that no one, no fiscal oversight commission, audits the books and records of a nation in Europe. This is true for the sovereign and this is true for the banks domiciled in a country. The audits that have been conducted have all been for the troubled nations that have lined-up for aid. In each case, every case, with Greece being the most notable example the numbers have not been as presented. This was true for Greece, Ireland and Portugal.

Does anybody really think that Spain much less Italy wants the IMF crawling up their proverbial butt only to find what most of us already have a good idea of what they will find? I highly doubt it. But in a centrally planned world pigs do fly. Or I should say PIIGS do LIE.

Anyway here is the Rick Santelli video that accompanied the article where they discuss this conditionality. Rick dont start until half of the video is over but the reporter in the beginning is well worth watching. Notice how many times he says “verbal intervention”. If one were to play the drinking game along with I can just about guarantee a darn good buzz by the end of the video. Enjoy. And no I am not drinking this early in the day 🙂

 Have a great weekend


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