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EUR/USD Closes Below 1.2500, USD/JPY – Nikkei Fly Higher Nov. 4, 2014

November 04
01:44 2014

Nikkei Runs With USD/JPY while US Equities Hesitate at all Time Highs

Its understandable why the Nikkei ran up another 380 points yesterday while the USD/JPY pushed 160+ pips but I have to question why US Equities didn’t at least show some moral support in the form of higher closes. It seems as though the big boys in the US aren’t so sure about being able to find the patsy to sell at higher highs to. Keep in mind that in order to realize your profits on over valued stocks someone has to be willing to buy that stock at the higher price. Therefore implying that who ever buys such stock is thinking they will profit in future higher prices. Also known as the patsy or Muppet if you trade with Goldman Sachs. Well as of yesterday they weren’t willing to stick their neck out and be the tall blade of grass that gets cut first but it was Monday so chances go up significantly today. What will be interesting is if US markets cant manage to break to higher highs in the next couple weeks it will show that the alliance is starting to crack. Meaning that although the big boys collude to drive prices higher while chasing yield they really only have their own interests at heart. As soon as some start to believe there wont be a patsy or Muppet to sell to the alliance will crumble and will be every man for himself. Its as John Hussman recently said.

 At present, the entire global financial system has been turned into a massive speculative carry trade. A carry trade involves buying some risky asset – regardless of price or valuation – so long as the current yield on that asset exceeds the short-term risk-free interest rate. Valuations don’t matter to carry-trade speculators, because the central feature of those trades is the expectation that the securities can be sold to some greater fool when the “spread” (the difference between the yield on the speculative asset and the risk-free interest rate) narrows.

Personally I agree with the “Bubble Exit Rule” noted the same article I read this morning.  “you only get out if you panic before everyone else does, you have to decide whether to look like an idiot before the crash or an idiot after it.”

Im not by any stretch saying we are on the cusp of the panic but we surely could be. I learned long ago to never underestimate what the big boys will do to keep their money and power. I do see more potential for the current status quo lasting quite some time until someone decides to be the first idiot that exits first.

On to the charts

EUR/USD Plunges on No News

The 74 pip plunge on the EUR/USD during the Asian session came with absolutely nothing news wise to drive it. There are several reasons as to why these things occur and none are good. For us FX traders we really dont care since we dont have the small army to track potential causes. We see it as a simple stop run adding to the potential for the reversal after several pushes down. Although it did have the daily close below 1.2500 the rejection at the lows doesn’t convince me of any conviction. In other words this pair could go either way today. If there wasn’t the potential stop run I would say they are more confused and just not willing to push and hold below 1.2500. The safer entries will be from set ups at yesterdays highs or lows but with the gap still not closed, if they do run it up they will test Fridays close to do so. Any trade I take on this pair today will need to be clean considering the other levels in close proximity.

EUR/USD Stop Run

GBP/USD Still Holding Range

The GBP/USD showed the same sort of panic in early Asia yesterday but recovered a bit quicker than the EU did. Having closed the day in the middle of the gap showing no change shows they haven’t decided on direction for this pair as of yet. This doesnt surprise me with the UK being the closest contender for the US economically they will need a reason to push out of this range. Again the best way to trade it today is from 1.6010 for the short or 1.5936 for the long while being cautious of the levels just above and below them. With the potential for the move during Asia being the stop run here as well I do see the chance for the break higher as more probable but any entry inside the range carries more risk.

GBP/USD Range bound


Its no wonder why the EUR/JPY is running off the Yen with the UJ these days. I just was hoping it would give me a reason to enter other than the potential for more upside as the BOJ prints them self into oblivion. There is a set up this morning though but the risk is higher than I like for the EJ so I will likely take the UJ if it gives me my price within a couple pips. Both have potential of breaking new recent highs on the data but the big boys may want to push out some weak holders first. Since they haven’t tried yet the probability is lower but as it slows the run up the chances do increase. If I do catch the long I wont be holding for a 200 pip run. If I miss the long this morning and they run it up the Asian lows are a valid level since we already have a 40 pip Asian range. The potential for a short from the highs is there but unlikely unless the Euro gets really weak all of a sudden or they really need to run stops to the downside.

EUR/JPY 1hr chart

Forex News Today

The calendar today is slow starting with UK Construction PMI data expected to drop from the last print. If this is the case then the housing market is slowing in the UK without tapering the help to buy scheme that I know of. If it comes out close then they probably wont move much but it will only take a small disappointment to get the GBP going. Any miss to the upside will need to be bigger to create much GBP strength.

Later the US has their Trade Balance and Factory Orders, neither of which I expect much for them to push much on barring a large miss. Otherwise it should be a quiet day unless we get a tape bomb of sorts

The Asian session tomorrow has New Zealand employment data Chinese HSBC Services PMI. Neither of these tend to be big movers unless they miss big but worth watching if you are in a trade.

Happy Trading




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