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Daily Forex EUR/USD, GBP/USD Commentary May 7, 2012

May 07
02:09 2012

The EUR/USD has had the gap down I mentioned in our forum over the weekend due to the elections in France and Greece. The French were somewhat expected to get rid of Sarcozy but the Greek wild card could still have some nasty repercussions down the road depending on how the political parties in Greece can work together. If they even can work together…more on that a bit later.

Looking at the 1hr chart here we definitely have a 3rd push down and I do expect some effort to try and close the gap from the news. We should see that attempt during the London session but if you do take a long here I wouldnt expect a large push out of it. I do have a feeling there will be some rhetoric coming from Europe today and to calm the markets from the political shake up there will be words of “working together” and such just to keep the tumble in check for the moment. Having said that my crystal ball has never been that accurate and there is plenty of reason to see more downside for the Euro in the near term. I will be looking to play the manipulation as usual and prefer a short position to be holding for any length of time.

The GBP/USD has a clearer 3 pushes now too so this pair has more probability for the reversal. I wouldnt expect too much from a long trade here either but as the EUR/GBP has potential to run off south the chance for the EU and GU running in opposite directions is higher. However eventually the EU will drag it down with it considering the fact of how intertwined the UK and European economies are. The longer term move will depend on the European rhetoric also. What does concern me a bit here too is that the Sunday gap has already closed and the pair is finding resistance to the upside move. We could possibly see the run off with no safe entry also.

Forex News Today

Of course any news events today will be overshadowed by the elections and its a good thing that there isnt much in way of releases from Europe with Sentix Investor Confidence and German Factory Orders. If the Factory orders are a big disappointment then we should see the Euro accelerate any drop but otherwise this will most likely be an opportunity for manipulation.

Uk banks are on holiday today observing May Day so with thinner liquidity during the London session the potential for larger moves is there also. Be careful and it would be best to trade from extreme levels (highs/lows)

We dont have any US news today so the US session will most likely be price action based moves digesting European rhetoric. Chance for manipulation is high during the US session.

European events to remember

  • 7 May: Germany to debate ESM. Parliamentary public hearing on the ESM Treaty.
  • 8 May: Greece auction. Bills.
  • 8 May: EFSF auction. Bills.
  • 11 May: European Commission to release spring economic forecasts.
  • 11 May: Italy auction. Bills.
  • 13 May: German state election in NRW. The vote in NRW can be seen as an important test of the electorate’s political mood.
  • 14 May: Spain auction. Bills.
  • 14 May: Italy auction. Bonds.
  • 14-15 May: Eurogroup and ECOFIN finance ministers meetings.
  • 15 May: Greece auction. Bills.
  • 15 May: Flash Estimate EU and euro area GDP. Eurostat to publish preliminary estimates for Q1 2012 GDP.
  • 17 May: Spain auction. Bonds.
  • 22 May: Spain auction. Bills.
  • 25 May: German parliament vote on Eurozone ‘Fiscal Compact’. The Fiscal Compact to strengthen budgetary discipline within the euro area will require a two-thirds majority in both the Bundestag and the Bundesrat, the upper house. Until now, cooperation between the coalition parties and the opposition has been smooth, underlining the pro-Europe sentiment. The SPD and the Greens are insisting on taxation of the financial sector and a growth package in return for their support.

All these events will have impact on the Euro for sure so mark them on your calendar. Watch for the manipulation on these days. The ones that stand out the most are the bond auctions and the EFSF in particular. If they go as previous auctions have with no demand and a premature cut off due to nobody wanting to risk buying this crap then it will have a definite negative impact on the Euro.

Happy Trading



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