Risk Aversion Ahead Of ECB Announcement March 5, 2015
Stocks Drop Along With Risk Currencies Ahead Of ECB
Of course just as I say they will likely hold any pushing until after the ECB announcement they run some risk aversion the day before and everything drops. I have to admit it dont surprise me in the least but it also shows they are getting somewhat freaked out. When JP Morgan comes out saying that the ECB will have to cut rates to negative 3% due to the high probability of QE failure I noted in yesterdays commentary,its starting to get serious. This is from Zero Hedge this morning.
Should a tail event such a deflationary spiral or Grexit occur, limits on ECB asset purchases will put Mario Draghi at a disadvantage as other central banks race to the bottom. JP Morgan says this will force the ECB to cut interest rates for cash deposits to minus 3% while the dollar will appreciate by 20%, reaching parity with euro in 2015.
The first type of worst-case scenario would be a new global deflationary shock. It might be triggered by faltering US growth or a sharper-than-expected slowdown in China. The consequence would be fiercer currency wars with balance sheet expansion races among central banks.
And then of course we get this as well.
CHINA SETS 2015 GDP GROWTH TARGET AT ABOUT 7%
CHINA TARGETS ABOUT 6% TRADE GROWTH IN 2015
CHINA MAY FACE MORE ECONOMIC DIFFICULTIES IN 2015 VS 2014
CHINA’S ECONOMIC DOWNWARD PRESSURE IS STILL GROWING: LI
CHINA MONETARY POLICY MAY EASE FURTHER IN 2Q: CHEN YULU
There we have it. They will have to finally admit things arent quite as rosy as they keep tying to make us believe. To the contrary actually.
EUR/USD Push Down Ahead Of ECB Announcement
With the clear first push down coming into the ECB announcement today I will have a bias for the short but the best level is rather far away at 1.1135. The 1.1118 is valid but being just a break out level means its weaker. Otherwise if they do manage a run to yesterdays lows during the Asian session I will watch for a set up at the Asian highs. There is still potential for a long from the lows at 1.1063 but I would expect to see more bottoming making it less probable for a continuation and will need enough price action to change my bias.
GBP/USD Drops With USD Strength
At this point I could argue that the GBP/USD has two if not three pushes down now. The move has taken more time than I usually like but at this point its best to remain open with a slight bias for the next move down. The daily close below significant daily levels does increase the probability it will go to around the 1.5200 level before a good chance of a bounce. Right now the 1.5273 level is best for the short but if they do push higher a test to around 1.5325 may be in order before a turn. Otherwise it would be best to see some conviction down and take a backside entry from yesterdays lows or a test of Asia highs first. I will be open for the long but so far I see no clues they will be running a deeper pullback.
EUR/JPY Runs Down With EU as UJ Holds Tight Range
The EUR/JPY has a cleaner two intraday push move so I will have more bias for the short on this pair today. If risk aversion really kicks in and they flee the USD going into the Yen the EJ will make an extended move. The Asian conviction does suggest they will test higher but it will need help from the UJ that may not come. The best level to short is up at 133.18 but the 132.94 or just above is valid as well. I will be willing to take it from the Asian highs but would be best to see them at least leave the Asian box closer to the lows.
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Forex News Today
The BOE and more important ECB releases today have a good chance of making a ruckus so they may not be moving much before the release since they did get a lot out of their system yesterday. Otherwise the German Factory Orders may get them going before since its expected to go negative. If it does impress with a miss upward they may just use it to run stops before a drop.
The US has Thursday Unemployment Claims expected at 295K. Amiss above 300K should be negative for the USD but will likely be over shadowed by Super Mario.
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