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Fx Market Commentary EUR/USD, GBP/USD, EUR/JPY May 18, 2012

The bottoming formations noted in the May 17 commentary failed miserably yesterday for several reasons  will get to later. For now I expect the downtrend to continue as there is nothing all that positive coming out of the markets. On the EUR/USD the hourly close below Wednesdays lows shows us that the bottoming formation was not real and the higher probability is for the move down today. As Asia moves on here I would expect the manipulation to the upside when the European market gets underway and will be looking to short. The issue here is we may not see much of a push to the upside and may have to take the aggressive entry in order to get in the move. However since they moved the market straight off yesterday I have my doubts they will do it again today. for now yesterdays low is holding and if Asia cant break it then the chance for the clear manipulation is higher.

The GBP/USD had the most failure of its bottoming formation and moved a very nice 140+ pips from its highs. I was a bit disappointed in missing it but I got over my habit of chasing trades years ago and I wasn’t about to start again. So far today it still hasn’t even looked back and is still pushing on to new lows during the Asian session. The fact is on this pair we had some major daily support at the 1.5780 level that really didnt provide much support at all and even though there was a bounce there the daily candle still closed below it so the probable weakness is high. There is still a possibility for the push up during London and that’s what I will be looking for here but I am thinking the Euro will be the better pair to trade today.

Then Yen crosses went crazy yesterday as the risk of market played out and we had massive moves on both pairs with the GBP/JPY moving well over 200 pips. I will be staying away from these for the time being. My thoughts are that the BOJ will be stepping up its rhetoric of intervention or possibly jumping in and physically intervening. I cant say I blame them. I find it just as hard to believe the market thinks the Yen is still a safe haven currency with the condition of the Japanese economy. However the market and I have difference of opinions from time to time.

Forex News Today

There is only one piece of significant news today with German PPI which is expected to fall slightly showing manufacturers are charging less for goods and inflation is slowing in Germany. Should this surprise to the down side it may just help open the door for a rate cut from the ECB at their next meeting.

The wild card today is the G8 meetings. With stocks and taking a beating over the last couple weeks there has been some rumors of a mass intervention of liquidity coming from this meeting and what a better way for Bernanke to find reason to do some QE before the presidential election than to be able to say it was a coordinated event with several countries around the world. I actually doubt there will be any action today but come Monday I will be watching closely. If this does happen there will be risk across the board and the Euro and Gbp will retrace quite a bit of this move and possibly turn the trend for awhile.

What caused the drop?

As I pointed out  a few weeks ago Moodys was on track to downgrade several European banks. Most of them Spanish. Yesterday they fulfilled their promise sooner than I expected and here we are. At this point I am thinking there are a few if not more of those banks that are teetering at the edge of bankruptcy and will need a shot in the arm very soon. Which adds more probability of the rumors of a mass intervention actually being true. Its going to get even more interesting here in the not so far off future guys.

Happy Trading


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