EUR/USD Closes Up 213 Pips From Days Lows Oct. 16, 2014
EUR/USD 200+ pip move the new risk off?
As I look through the news to try and make some sense of the move on the EUR/USD yesterday its clear that it was a risk aversion move . However typically in such moves the EU moves down instead of up since the Euro is usually seen as the riskier currency in the pair. Something has changed. Most likely due to currency flows along with the fact the ECB will probably be limited in its OMT program. Therefor unable to dilute the currency base like the FED. Its sort of a toss up as to which way they go though. Like I mentioned in previous commentaries, if they cant go full retard the probability of seeing a fake recovery (like the US) is very low so the economic weakness will persist which should also weaken the Euro. At this point these forces will be fighting each other for awhile so the EUR/USD is probably going to be choppy for the near to medium term future.
These wild moves always make direction questionable since there is always the possibility they run a deeper pullback or go with a continuation on momentum so I will be open for both today. The best level to short is now at the Asin highs that coincide with yesterdays close but an entry there does carry more risk not only because of proximity to current price but that fact they pushed it all the way to 1.2885 yesterday before the deep pullback and close above the four hour 200 EMA. Therefore the safer short would be from the highs at 1.2885 although I have my doubts they will push there if they intend to pull it back. The safer long would be way down at 1.2769 but with an Asian range of 37 pips already the Asian lows at 1.2807 are valid with them showing the proven support at the breakout just before the close for the day.
GBP/USD 190 pip chop not convincing
The GBP/USD making such a wild chop yesterday shows they may be getting a little freaked out. Again with this move we are left guessing on which direction they may push today but at least they did close the inefficiency with the spike to the highs so we don’t have to wonder about that anymore. As for potential levels on this pair the less risky ones are far away from current price so I will be looking at the Asian highs at 1.6018 for the short since it does have the confluence of yesterdays close. The Asian lows at 1.5975 are also valid for the long today with the Asian range already at 40+ pips. Having said that I will need to see a very clean set up due to the extra risk at those levels. Otherwise I will wait for a test up to the hourly 200 at 1.6049 for a short or down to 1.5911 for a long.
EUR/JPY showing no sign of risk aversion
I have to admit that seeing the EUR/JPY behave like it did in a risk off scenario is weird. I know this was the situation due to some news saying that there were many funds pulling out of equities and going into USTs yesterday. That says risk aversion all day long. So why didn’t the EUR/JPY make an extended move south? Well the move on the EUR/USD explains a lot of it and if it does keep up as the new normal then we will be in for more in the future. I think much of it will depend on what the courts say about the ECB OMT program so for now its up in the air.
As of now the EJ has shown conviction above yesterdays highs so I will have a small bias for the long. However I would prefer that the UJ agree and its not helping one bit so far. This shows they are moving more on the Euro and is less safe for entries during the Asian session so I will wait for London later. The levels on this pair will be the Asian lows for the long around 135.68 and I will be open for the short at the Asian highs with something that convinces me the conviction was false. At least two trap moves during the London session would suffice.
Forex News Today
The calendar is slow during the London session with only Euro Zone CPI data. Expectations for the higher impact release are flat so as long as it don’t miss then we wont see much. However even if it does disappoint we may not get a big move due to the potential for the ECB to have their hands tied on full blown QE. If I am in a trade on the EU at the time I will close on any spike that gets me twice my risk to be safe.
The NY session should be interesting with five different Fed members speaking. Three are dovish and two hawkish so the probability is for skewing toward the dove side unless one of the doves have a change of heart. Otherwise with those going on it will take larger misses for the Thursday Unemployment claims, Industrial Production or Philly Fed figures to get them pushing.
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