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Fx EUR/USD Commentary February 20, 2012

As I was talking to one of our students over the weekend he asked me what I thought the Euro would do this week. I told him I expected a gap up and a push considering what I just saw. I had been reading up on the market developments over the weekend and it sure seems like the Greek deal is coming to a head. They accepted Germanys demand that the bail out money be put into an escrow account and ear marked for only servicing their debt. Which is a good thing but still leaves the question open of how much the Greek people can take. As I said months ago it would have been better to just let Greece default and the pain would be a lot closer to over now and the world adjusting rather than (in my opinion) just making the correction worse in the future like they have. However there are just too many people with vested interest in seeing the Euro project succeed that they refuse to take the blinders off and see the forest through the trees. How long can they sustain this is really what I ask myself and I dont think its going to be much longer. This is one case where I surely hope I am wrong but I am not the only one that has this opinion.

When going through the events over the weekend I came across a very interesting article called. Ten Unanswered Questions About the Second Greek Bailout. A very good read. What struck me the most was the part where they describe just what its going to take in Euros to just get the debt restructuring finished. By their math calculations its going to take 93 billion Euros just to get that part of the bail out done. I am curious how they came up with that number but even if its close it really dont seem like there will be any cash left in a very short time. If we just add the 14 billion in bonds due on March 20th (many of them held by the PSI holdouts) they are down to just 23 billion to keep them afloat and this bailout is supposed to get them through the next 3 years. Even if they wiped that March maturity out it wouldnt do much good. There was also some reports not too long ago that the bailout package was quietly raised to 210 billion but if memory serves me Germany squashed the idea pretty quick.

Lastly there has also been reports that the IMF has been reworking its numbers trying to figure out where the Greeks will stand after the bailout and debt write downs and last I saw what they have come up with was their debt to GDP will still be above the 120% they figured should be sustainable by Greece come 2020. What gets me about this is not only did the percentage of projected debt to GDP numbers rise a little bit. (123%) But it also assumes that the Greek economy will get back on a path to growth and that just dont seem likely to me in the in the near future mush less further out.

There is not much news on the agenda today and the US is on bank holiday for presidents day so the move will most likely occur during the Asian session and is already under way. Once we get thru this accumulation phase I expect another push up but there is a good chance the market will chop during the London session.

Looking at the daily chart I see the nice gap and resistance coming up at 1.3256 then 3285. Its possible we test the highs just above 1.3300 in the next couple days but the chance of that level holding is good I think.

Take care and Happy Trading



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