May 2, 2013 Daily EUR/USD, GBP/USD Analysis
The question of the day today for the EUR/USD is, will the ECB cut rates as expected? The fact is there was some discussion about interest rates at the last ECB meeting but it wasn’t that significant and really didn’t leave much for someone to make a sure assessment of they will cut rates this time. What is the main driver of expectations this time around is that things have still deteriorated so much in Europe that they don’t have a choice any more. Plus on top of the still slowing economy Germanys Bundesbank has filed a complaint against Mario Draghis OMT plan saying it violates the treaty.
So no money printing even if they wanted to and if some country was even willing to ask the Cyprus template would most likely look like a walk in the park compared to the conditions that would come with activating OMT. Not that Germany would let them. So what is left? Interest rates and that’s it. There are no other tricks up Super Marios sleeve.
Therefore in my mind the question becomes how much and will he surprise with a 50bps cut rather than the 25 expected. I think there is a good chance. Mainly because he did just that after taking the helm at the ECB after JC Trichet fought so hard to keep rates at 1% for so long and as soon as Draghi comes in he squashes that with a cut. On the other hand with only rate cuts left at his disposal and the can still in need of more room to kick he ay just hold off and just do the 25bps cut. I think it would surely be an act of desperation to make the larger surprise cut but I am sure we can all agree things are looking pretty desperate in Europe these days. Things could get very interesting today. On to the charts.
The EUR/USD did make another weak push up yesterday and now has a much prettier topping formation along with the daily chart showing a nice pin bar. My bias today will be for the short but I will want to be in the trade and stop to break even well before the ECB news release. With price currently below the 1.3200 level there is a chance they wont let it rise above that level before the release but I would prefer to see some resistance there in order to be more confident in it holding. The better level is around 1.3212 and there is a possibility for the Asian highs holding at 1.3188 but I will want to see a 25 pip or so manipulation move with clear patterns showing the manipulation there. Meaning price will have to leave the Asian box around its current lows to see that.
The only way I see potential for a long is if they know Super Mario is not going to cut rates which is unlikely.
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The GBP/USD also made a weak push up yesterday. The topping formation is even clearer with the attempt at the 1.5600 level with several rejections and a stop run above it. My bias will be short for this pair today also. However with expectations of the ECB rate cut we will probably see it make another attempt to the upside as the EUR/GBP takes a hit. The best level I see for the short is 1.5587 considering the proximity to price right now but with the 1.5600 psych level right behind it the manipulation will need to be clear. I will also want a good entry with my stop above the highs. The chance for a long is low but I will be willing to consider one with some clear events telling me my bias is wrong.
Forex News Today
Scheduled releases start off with French Italian German and EZ Manufacturing PMI figures mostly expected to be flat and any movement will most likely be on a large miss with the more important news later in the day with the ECB. The UK has construction PMI expected to rise a little but still below 50 so it will probably take a miss to the upside getting close to 50 for much reaction that has a slim chance of being sustained.
The US has its Trade Balance and Thursday Unemployment data released at the same time Super Mario starts his speech so it will take a large miss to the upside to create USD weakness as long as he does as expected and cut rates.
If Draghi does only cut the 25bps then we will be looking to see any hints of further cuts which in my opinion has a good chance if he don’t surprise with a 50bps cut. In that scenario the Euro will still weaken.
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