Daily Analysis of EUR/USD, GBP/USD January 6, 2014
We have finally arrived at serious trading for the start of 2014. Its going to be a great year, I can just feel it. Now that traders will be back from the winter break liquidity will be at a normal rate and the big boys will certainly be doing their thing also.
There wasn’t much big news over the weekend but one thing did stick out that I wanted to mention. Good old Bitcoin is back up to $1000. To be honest this little trade I made when I bought at between $80 and $100 could easily be the trade of the decade for me. This has been the one of the few long term investments I have made and being up 1000% right now seems like a dream come true but I am still in for the long haul and will hold for the next few years expecting to see it get to between 10K and 100K Having said that there are a few things to consider when having these sort of expectations so I wanted to list them for those who may be interested.
Pros and Cons
Most people are starting to be aware of the pros Bitcoin offers which is the anonymity and even more so the low cost to transfer payments. One only needs an internet connection to send or receive money for far less than what Western Union or even wire transfers cost. This is big and will eventually make the money transfer companies far less profitable even though I doubt it will totally put them out of business.
There is a small problem with the anonymous part too in that they have found a way to track wallets so hopefully that works in favor of bitcoin in that it wont be looked at as a money laundering vehicle or a way for illicit transactions to take place. As long as it doesn’t lead to some sort of regulation by the banks turning it into another sort of manipulated fiat currency then this is positive for Bitcoin. People should pay their taxes and keep the drug cartels from doing business with it so all is good there. The last one I will mention is the possibility of philanthropy costs going way down as donators will not need to go through the middleman in the form of a non profit group that takes a percentage off the top to pay executives and administration costs.
Not that all these are bad by any means but the laws that regulate these nonprofit companies only require that they actually give 10% of donations to the people they help. Having said that most have an open book policy that shows they get at least 50-70 % going to the needy. Mainly because not just 20 years ago many were found only following the law and keeping 90% for administration and only the 10% funding projects. There are more pros but I will save those for another post.
The cons start with the mode of verifying transactions or mining as its called. Basically people who verify transactions, so there is no double spending of a Bitcoin, get paid in Bitcoins for providing this service. The problem lies with the computing power needed to do this. With between half and 3/4 of the total amount of bitcoins produced the combined computing power that is doing this now is equivalent to the biggest super computer in the world. Even the NSAs new world wide tracking system they put in Utah is as big. That says something.
The problem is that the electricity costs of doing this is getting close to what they get paid so without it being profitable to verify transactions who will want to do it? The answer to this is again some light regulation that can verify transactions in another way but then again leaves Bitcoin open to manipulation of sorts by the regulators. Finding the balance or another way of speeding up the computer processing without using more electric power is another option but still easier said than done.
The last con I will mention is the ease of how Bitcoins can be lost or stolen. There have been several cases of people losing their password to their wallet or even losing the hard drive they have their wallet on. In this case Bitcoin is no different than cash. If you lose your wallet with $1000 in it the chances are the cash is gone forever. The same applies here. The answer again is some sort of regulatory body that insures it like the FDIC does for savings accounts in the US. The problem with that is again regulation balance that keeps the security but don’t allow for manipulation. Stealing Bitcoins has proven to be rather easy for good hackers, or like the bone head reporter that had his bitcoins stole when he showed the code for his wallet on national TV. It was only seconds or minutes before somebody took a screen shot of the code and stole $20 from him.
The way I look at this aspect of Bitcoin is neutral. Yes for the long tem holder like myself it can be discouraging but anybody who does a transaction can easily buy the coins they need, make the transaction and then the receiver can easily sell the coins in their local currency at the same price or very close to what the transaction was originally. Most likely saving money considering the cost of other wire transfer companies. In my view, for the people or businesses using them to buy goods and services this is a moot point. This is why we are seeing more and more of businesses accepting Bitcoin as payment every day and is not going to change. Eventually the volatility will slow especially as they get closer to the maximum amount of Bitcoins that can be produced. Of course it will have its ups and downs in the mean time so if you invest for the long term like myself wait for another one of these big drops and buy at a good price keeping the investment lower. I am relatively sure you will be happy in the long run.
On to the charts
The best way to start off a new year is to go to the daily charts and see where the probable points of turning or breaking can occur. For the EUR/USD that is around Decembers lows at 1.3522. It will definitely take some conviction to break down from there but considering the bearish sentiment it has a very good probability of getting tested or even breaking today. We also have two pushes down but I will still be cautious since they came during a low liquidity time of year and still be slightly open for a long with the right price action or see the trapping at the daily level mentioned above. The best place for a short is around the 1.3612 level where there is proven resistance but they may also try and test the breakout level above at 1.3629 before they go off. If I see the hourly close below the lows during the London session then it will solidify the short bias and depending on the move down will look to either the Asian highs or possibly the lows if the move is big enough. I would prefer that we don’t see conviction during Asia due to the possibility of it being a fake out.
The GBP/USD has shown some significant weakness this morning dropping more than 60 pips already. The next significant daily level they are likely to test is 1.6317 but I would expect most of this move during Asia to get retraced before the do so. Price initially gaped down and promptly closed before the drop so that dos show me there is some conviction but as always I am cautious about conviction moves during Asia. For now as long as price stays well below Fridays lows I will consider the 1.6400 level for the short but if they pull it back most of the way this morning they will probably test the Asian highs at 1.6415 or even hit 1.6420 as they like the 20 psych level so much with this pair. If it does run down I will consider the long around 1.6317 at the 4hr 200 ema but would prefer the short after a pullback. As far as the pushes go I can see the two down but with the long run they may need to take some money off the table and pull it back which is what I am counting on for the third push today.
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Forex News Today
The Economic Calendar is light today with Service PMI figures from some European countries and the UK. As most probably know its the UK figures that have a chance of impacting movement today. With the UK being a service based economy if they are doing well then the GBP should strengthen. However it seems as though somebody might have been leaked the data already considering this move this morning. Expectations are flat at 60 and if by some chance this is a fake out before a better release then the GU will surely retrace the drop.
The US has ISM Non-Manufacturing PMI expected to rise over a half of a point. If it does manage to do so or miss to the upside the USD strength will continue and we will get the moves I expect today. Even if it misses to the downside as long as its not big the probability of the USD strength holding is good.
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