Daily Analysis for EUR/USD, GBP/USD September 16, 2013
We have a 60 pip gap on the EUR/USD this morning thanks to Larry Summers removing himself from consideration to replace Bernanke as the Printer in Chief at the Fed. This leaves just Janet Yellen as the only candidate who is as dovish or even more so then Helicopter Ben. Having said that we do have the Fed rate decision later this week were Ben is expected to taper the print fest somewhat. At this point I have to agree that he will do a little tapering just to save face as he exits. Instead of leaving his legacy as Fed chief as the QE specialist that saved the banks instead of the economy he will want to at least be able to say that he started to taper but who ever took over is to blame for what happens down the road when everything goes down the proverbial crapper.
I guess that’s just the long version of why I expect this gap to close today but the chances are they will only get to last weeks highs before they hold it up. The wild card will be just how much will Ben taper. If he don’t then of course we will see new highs on the EU.
As for price action today I see two scenarios that have the highest probability. If they don’t close the gap during Asia then I expect they will probably test the highs at 1.3396 before they make the attempt during the London session. I highly doubt they will have the conviction to break and continue above that daily level with Ben on the plate later this week. If they can manage to close the gap at least to last weeks highs then I expect they will chop it around in this 70 pip range unless we get some big news that pushes them in one direction of “to taper or not to taper” side of the fence.
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The GBP/USD has the same gap as the Euro this morning but has more distance to run before it hits any significant selling pressure on the daily charts. Of course it will take some help from the EUR/GBP if they wont push the EU on USD weakness but this pair definitely has more wiggle room and may push higher before the realization of the expected taper comes into play. The tell will be if they keep pushing up during Asia or hold it below the current highs.
Having said that with the extended push upward on Friday I will be slightly bias for the next push up today but will prefer that the gap close first. The only way I will consider the Asian lows as a potential entry is if we get conviction above the highs during London today. Again I do expect the taper talk and expectations to create some USD strength at some point but it may not be until tomorrow that we see it. Its going to be an interesting couple days until the meeting on Wednesday.
Forex News Today
The calendar starts off with a Super Mario Draghi speech today which is scheduled after London has opened for an hour. With the way he has been more so doing a Euro dump lately I expect more of the same. The fact is as the Euro gets stronger it hurts the European economies further and although they wont admit it the world is in a currency war of sorts with the race to the bottom going on for at least a year or more. We could say its been going on longer but everybody jumped in more recently so it is what it is I guess.
Later there is the NY Empire State Manufacturing Index expected to rise and should only make some waves if it misses big. There is also Industrial Production expected to get into positive territory which should have the same reaction on a miss. If these are better than expected the they may just be the catalyst to close the gap if they haven’t done it during London.
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