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Fx EUR/USD Commentary January 23, 2012

As everyone reading this knows when we talk fundamentals considering the Euro the Greek debt talks have come to the forefront. I really dont want to beat a dead horse on this but I cant deny that this deal is whats driving price action as of late. It seems the LTRO has done the trick for Spain and Italy for the time being and all eyes are on this debt deal.

After many hours contemplating the outcome I have come to think that eventually the deal will get done in some fashion. The fact is they have to. The alternative is unacceptable to most all involved. I think about it this way. The banks and hedge funds are better off taking something rather than getting nothing but will (as they have) hold out to get the best deal possible. It seems like common sense to me at this point. Having said that we all should remember that common sense is NOT all that common.

I have already seen many reports of economists crunching the numbers and very few of them believe that Greek debt will be at a sustainable level considering the slump Greece is in presently. However the market will feel much better about contagion for the time being and will most likely turn focus to somewhere else for awhile anyway. Most likely Ireland and/or Portugal. These 2 countries have been coming up on the radar lately and last I saw on Ireland is the government was starting the talk of how they need a debt reduction also. If this does come to fruition it will kill the idea that the Greek debt write down is a one time  deal and nobody else will get one. It wont be long until Portugal joins in at that party should Ireland start pushing the issue.

Looking at the charts we had one of the largest gaps to open on Monday in quite some time. Just under 50 pips. This is substantial but mainly due to the expectation of the debt talks being finished over the weekend and the market was let down once again. What sticks out to me most is that the gap was below the lows that were rejected from Friday. As I type price has come back to test that low from the bottom and if price does break above that area at 1.2900 then the gap will most likely fill in the near future. If it cant close that gap then the chance for the break below the recent lows increases but I wouldnt expect that soon or even this week for that matter. I have a feeling that we will be in for a choppy week possibly running into next month. Its going to be fun trading in the short term.

Looking at my 15 minute chart the move to close the gap has been gaining speed. It has pushed above the 1.2900 level but has potential to be a stop run . Now that the push above the lows from Friday has begun I will be waiting to see if the gap closes or this move is indeed the stop run. Once I see more intent to the downside I will short. Otherwise I will be waiting for the gap to fill or get close and see where the Smart money will make a push today. Be ready for the chop too guys.

Be careful out there


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