Daily Forex EUR/USD, GBP/USD Commentary October 30, 2012
The markets were a little subdued yesterday as expected with the US closed for the hurricane. As I look at the price action on the EUR/USD I see that it has gone into a potential chop scenario leaving direction somewhat in question. I do still have a bearish bias but wont totally disregard the potential for a long today. However if we do get the hourly close below the lows from Friday last week then I will only be looking to short. Any long position will only be off a clear 1 hour stop run to yesterday’s lows.
The support level we are holding here is not only a daily low from August, but also the daily 200ema is sitting at 1.2877. This has been the first time in months that the Euro has stayed above the daily 200 for more than a day so its expected that it will be hard to break through. Having said that the bearish close yesterday after the rejection last Friday does tell me its getting closer.
The first place I will be looking for the trap will be the rejected highs during the US session. There was a nice pin bar that tested the Asian lows along with the 4 hour 200ema that was firmly rejected so that high of 1.2930 will have the best potential for the trap. I will also be watching that 4 hour 200 because there is a good chance the manipulation happens there considering that rejection. What makes me think it will get to 1.2930 is simply that the 4 hour 200 is just to close to current price and I cant discount the possibility of them wanting to load up for the break even more and push to yesterdays highs.
The price action on the GBP/USD yesterday shows that the less clear levels of push were most likely what they were trading from. I hate it when they do that but now you know why I mentioned that in the Oct.29 forex commentary. There was no clear manipulation until after the break of the Asian lows and those trades are riskier to take so I passed on any entries.
As for today with the first push down I will expect the second. However like I mention in several other commentaries with some clear manipulation its alright to trade against the first push. So if I do see a clear stop run to the lows from yesterday at the 1.6005 level then a long position could net a good 40-50 pips but I wont be holding for more than that. If that is what they have in mind by the time we see 50 pips or so from the lows the market will be hitting the area with both the 4hour and hourly 200emas where it has a good chance to turn.
If we dont get the test to the lows for the potential long then the place I will prefer to be seeing the manipulation to short will be the 200ema area. However there is still the possibility that we will get it at the Asian highs depending on how Asia plays out today. If we dont see anything clear at those levels then the chance we get a bit of a deeper pullback to the Asian break out level yesterday of 1.6072 is there.
Forex News Today
News is again somewhat light today. We do have a Mario Draghi speech to start things off for the London session. After looking at where he will be speaking I doubt he will be answering any questions. This leaves the potential for the Euro pump and then the probable dump. That is of course only if he he has the guts to try and say all is well and there is nothing to worry about. Of which he has been doing much less of lately. The thing is once you are all in and your chips have been found to be worthless anything else you have to offer the pot just to stay in the game is also worth little or nothing. It seems Super Mario has found this out the hard way.
At the same time as Drghi speaks will be the release of Spanish GDP m/m. Even though the speech is market higher impact this could overshadow him with a large deviation to the downside. We all know Spain is in big trouble to put it lightly. If it misses by more than a couple points then Spanish debt will likely take a hit and will be Euro negative.
Later is German Unemployment Change expected to rise by 10K. If we get the higher deviation showing more Germans are losing their jobs also showing the core at its center is feeling the crunch. This also will be Euro negative. Also I will be keeping an eye on the revision here. for some reason we have seen several revised figures that have had more impact than the headline number so be aware of that.
To top it off there is an Italian 10yr bond auction tentatively scheduled so they can try and sneak it by us. 🙂 If this does go badly (of which I doubt) the Euro will sink rather quick especially if the news from Spain gets the push started.
The UK has CBI Realized Sales expected a notch higher. This I expect will be a non mover as its in line with the good GDP figures.
The high impact news from the US has been postponed due to the hurricane. They must not want that to be released unless the US market can manipulate with it. 🙂
Meanwhile In Spain
As I poured through my news this morning I see that Spain has finally gotten their “Bad Bank” up and running. Its about time I guess. Not that it would have done anything but show just how bad of Spain was with its housing market sooner. However now we all can feel warm and fuzzy about Spain because they are going to wash all that bad dept. Make it clean so nobody has to show the massive hit they should have took and didnt. It will be this Bad Bank that takes the blunt of it and all is good right? I dont know about you but to me it sounds more akin to money laundering. 🙂 Of course what I think really does not matter but I just had to throw my 2 cents in. Here are some excerpts from a Zero Hedge article.
The details of the Spanish bad bank are being released and it is ugly – far uglier than many had expected. And while the Spanish government expects private interest to take some of this massively discounted ‘crap’ off their hands, we have three words: ‘deleveraging’ and ‘no bid!’.
- *RESTOY SAYS BAD BANK AIMS TO BE PROFITABLE
- *SPAIN BAD BANK TO DISCOUNT LOANS AVG 46%; FORECLOSED ASSETS 63%
- *SPAIN AIMS FOR BAD BANK NOT TO COUNT TOWARDS PUBLIC ACCOUNTS
- *SPAIN TO DISCUSS BAD BANK WITH INVESTORS IN COMING DAYS
- *SPAIN BAD BANK TO INCLUDE FORECLOSED ASSETS, LOANS, STAKES
The Spanish government remain in a world of their own with this level of self-delusion. Haircut details as per the below:
What this table shows is up through what valuation point there are no natural bids on given Spanish assets. In other words, nobody will bid on Spanish Land at even an 80% haircut, and the fair value of new Housing is well below half of book value! Said otherwise, the state of Spanish real estate is an absolute catastrophe and the bad bank implicit haircuts just confirmed this.
Finally, the comedy concludes:
- BAD BANK VALUES NOT REFERENCE FOR NON-TRANSFERRED ASSETS: FROB
- SPAIN SAYS BAD BANK’S BUSINESS PLAN IS STILL PROVISIONAL
- BAD BANK TO HAVE `MODEST RESULTS’ IN FIRST YEARS, FROB SAYS
To summarize: Spain wants its banks to default on its assets, without actually defaulting, have the liability be transferred to a third party, and then not have this third party’s debt be counted against the debt of the country.
A comparable analogy would see someone defaulting on their mortgage, keeping the house, and not have the default count against their credit rating.
Finally, as a reminder, Spain has €180 billion in bad loans and rising exponentially. Even a blended 50% haircut will barely cover just the existing population of bad loans, which will very soon surpass €200 billion and proceed to soar happily ever higher, at which point the current Bad Bank iteration will be found to be far too little (as usual), about 3 years too late.
So all is good right? Can any body say “Fire Sale” with me. Im not talking about the kind of fire sale when everything must go. This is the kind of fire sale when what you are holding is worth more as an insurance claim so they “accidentally” burn it all to the ground and claim the insurance. Disclaimer: Thats a joke not a suggestion 🙂
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