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USDX Weakness As Equities Tumble December 11, 2014

Global Equities Dump With USDX Weakness

Trying to figure out why the USD is weaker along with a risk aversion move is probably as close to futile as it gets. I can think of several right off hand while some say its profit taking in the USD/JPY or even the leaked report from the European Unin showing Super Mario has has been shoved a dose of kryptonite leaving any ability for a mass print of Euros off the table until mid next year. This is from the FT

 Back in October at a eurozone summit, Draghi was able to get a little-noticed statement out of the assembled leaders committing them to another “Four Presidents Report”, a reference to the blueprint delivered in 2012 that set a path towards further centralization of eurozone economic policy. The report helped kick-start the EU’s just-completed “banking union.”

Progress on that 2012 blueprint has since stalled, however, and at his last summit press conference, then-European Council president Herman Van Rompuy said the new “Four Presidents Report” would be delivered at the December EU summit, which starts next Thursday. Many in Brussels saw this as the quid for Draghi’s quo – once the leaders agreed to another blueprint for eurozone integration, Draghi would have a free hand to launch QE.

But according to a leaked draft of the communiqué for next week’s summit, Draghi may have to deliver his quo without a eurozone quid. The text makes clear that leaders have no intention of delivering a new blueprint any time soon.

Draghi won’t have the normal political cover he needs to make a bold decision early next year – a problem only compounded by the European Commission’s decision last month to put off the day of reckoning for France and Italy over whether they will face sanctions for failing to live up to the EU’s crisis-era budget rules.”

Again I have my doubts its any one issue but several coming together and see these large moves as not just profit taking but a mass exit of current positions that has great potential to start the correction many have been calling for years. It surely sounds like the fat lady is singing when Bank Of America says such things as,

Barnaby Martin, [Bank of America]’s European credit chief, said world asset markets may face a stress test as the US Federal Reserve starts to tighten afters year of largesse. “Our biggest worry is the end of the liquidity cycle. The Fed is done and it is preparing to raise rates. The reach for yield that we have seen since 2009 is going into reverse”, he said. 

Mr Martin flagged warnings by William Dudley, the head of the New York Fed, that the US authorities had tightened too gently in 2004 and might do better to adopt the strategy of 1994 when they raised rates fast and hard, sending tremors through global bond markets.

Bank of America said quantitative easing in Europe and Japan will cover just 35pc of the global stimulus lost as the Fed pulls back, creating a treacherous hiatus for markets. It warned that the full effect of Fed tapering had yet to be felt. From now on the markets cannot expected to be rescued every time there is a squall. “The threshold for the Fed to return to QE will be high. This is why we believe we are entering a phase in which bad news will be bad news and volatility will likely rise,” it said.

What is clear is that the world has become addicted to central bank stimulus.

Things are about to get real interesting if this guy is correct and the Fed is truly done and has the nerve to actually raise rates. I have my doubts but wouldn’t be the first or third time I have been wrong.

EUR/USD Jumps 50 Pips At Asia Open

As most members know I am always suspicious of EUR/USD moves like this during the Asian session, however its hard not to see the close toward the first hourly candle highs as conviction on direction even if its the Asian session. Technically it does show a first long term push so I will have a small bias for the long today. The best level to see hit before a turn is the 1.2447 but there are a couple weaker daily levels in between that could stop it during the London session today. As long as they can mount a decent pullback during Asia then I will wait for 1.2447. Otherwise I will be open for the short at the current Asian highs. There is a valid daily level along with the four hour 200 for confluence but the set up will need to be clear enough to override the bias for a long.

EUR/USD Hourly chart 12-11-2014

GBP/USD Follows Euro Run on USD Weakness

When the GBP/USD makes the same as the EUR/USD move this early in the day it adds to the probability that they will be pushing USD weakness today but we will need to see that hold during the London session in order to confirm it. This pair also has a first push move but as always seeing it complete during the Asian session makes it questionable. The potential for this being a fake out is still there. What I will want to see is them hold price above the breakout level during Asia and show the trap there during London, otherwise this is more likely a false conviction move. At this point the best level for a long is the current Asian lows while I will only consider a short from the highs if there is not a set up for the long and wee see price continue lower this morning showing it was a fake out.

GBP/USD hourly chart 12-11-2014

EUR/JPY Drops with USD/JPY

Now that the EUR/JPY has made the third push down we are seeing the reversal we look to trade after. Its too bad the set up wasnt clear to take the run for 60 of the 90 pip run from the lows this morning. The USD/JPY did show holding at the lows but also had some hourly conviction lowering the potential. Considering the bottoming formation I mentioned yesterday being over run to make the third push along with the 90 pip reversal already happening this morning I will be more open on direction for this pair. Right now it could be setting up for the short at 147.28 but if it gets hourly conviction above it will likely test the next level up at 147.55. The safest level for a long is down at the lows even though there are a couple higher risk levels in between.

EUR/JPY hourly chart 12-11-2014

Forex News Today

Dtata releases start early with CPI figures from the top Euro Zone countries. Germany will be most important as usual but any big moves or drops below zero for France or Germany may get them moving. However with Super Mario having weaker powers now the potential is lower. Later is the ECB Monthly Bulletin that will most likely mirror the last statement but has potential to surprise if any dissent is seen clearer on the ECB QE program.

The US has Retail Sales and weekly Unemployment Claims. I have my doubts the Unemployment data will do much unless it jumps well above 300K but Retail Sales has good potential being close to the big zero mark. Any pop below and the USD should weaken while a miss to the upside will need to be larger to create a sustained move on USD strength.

AUD traders have Chinese Industrial Production to watch out for tomorrow.

Happy Trading




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