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EUR/USD, GBP/USD FX Daily Commentary June 19, 2012

June 19
03:06 2012

The EUR/USD has made a significant reversal for the first push to the downside like I mentioned in the forex commentary from June 18. For now it has found some support at the hourly 200ema for. I will be looking for the 2nd push down today but we do have a chance for the deeper pullback before it goes. As I type we are seeing the daily lows from Thursday last week show some resistance. If this does hold I will be looking for the clear signs of manipulation at this area during the London session for the short. I would prefer to see the manipulation at the 15min 200ema or the manipulation area so I will want to see a clear trap move at the Asian range to short there.

The GBP/USD has been holding on to its strength as expected. With the Euro going down in flames the GBP has been getting back some of its safe haven status which is why the moves have been limited to the downside as of late when the Euro drops. Looking at this hourly chart I can see 3 clear intraday pushes to the downside for around 100 pips so we may be in the 1st push longer term but with no 3rd push chop anywhere close we will have to keep an open mind on trades in this pair for awhile I think. If we do have a risk off day as we did yesterday then it will go down to but not as fast as the Euro given the  GBP safe haven issue coming back. Since we are holding the 4hr 200ema at this time I am a little bias to the downside but I am not going to hold myself to a short today.

Forex News Today

First on the list for news releases today is the G20 Meetings. Where every one of the 20 countries will try to corner Germany into letting the ECB print Euros and I think they will be disappointed. A bit more on that later.

The UK has CPI figures starting off the London session and expected to see no change. I doubt this will have much impact either way if there is a surprise. mainly because inflation is something the UK has tolerated and still did more Asset Purchases. However it may be a good chance to manipulate for the Smart Money.

The Euro Zone has German ZEW Economic Sentiment which is expected to drop significantly from 10.8 to 3.8. If it does drop that much we may actually get Germany adding up its bad data that could ease pressure on Merkel at home. It will take Germany starting to fall before they loosen the grip on the ECB the way I see it. At the same time we also have EZ ZEW Economic Sentiment expected to go further into negative territory.

The US has Building Permits and Housing Starts of which I dont expect to be a market moving event as even a surprise wont be large enough to show the housing sector has actually bottomed yet. The way I see it we have a couple more years before we witness that and even that idea may be optimistic.

The G20 and Fed Meeting

We already have some idea of how the G20 will go and I found an article that sums it up well and here are some of the key points from The Testosterone Pit. I couldnt agree more.

So they all arrived at the current G-20 summit in Los Cabos, Mexico, with their own agendas. While tiny Greece is still front and center, the summit has been escalated: bailing out Greece wouldn’t be enough. Now it would be about bailing out the entire 17-nation Eurozone and its currency. And even broader. President Obama made his agenda clear: he wanted everybody else to do “what’s necessary to stabilize the world financial system.”

But the finger-pointing already started. “Frankly, we are not coming here to receive lessons,” said European Union President Jose Manuel Barroso. Lest the most powerful man on earth should forget, Barroso added that the euro debt crisis “was originated in North America.” Presumably, if it hadn’t been for US subprime mortgages blowing up, Spain’s housing bubble could have continued ad infinitum, along with Greece’s profligate ways, and the debt crisis wouldn’t even exist. “But we are not putting the blame on our partners.”

Indeed, President Obama is going to be busy handing out lessons. There will be Russian President Vladimir Putin on Syria and Iran, Chinese President Hu Jintao on the yuan, and of course Merkel. Obama will push her to hand Greece unlimited amounts of money, bail out Spain and Italy while she is at it, and do whatever it takes to bail out the Eurozone as a whole. She would also have to calm the markets. But above all, she’d have to make sure that none of this euro effluent would cross the Atlantic and muck up his reelection chances.

That sums it up pretty well for me. Just another rerun of the same old stuff on a different day as things get worse and worse. They all just want to keep their seat of power as long as they can.

Now lets get on to the Fed Meeting tomorrow. Will they print? At this point I have my doubts but Goldman thinks they will and could start a printing scheme that has no limit or scheduled end. This would be crazy and the inflationary melt down or up depending on how you look at it will not be far off. My reasoning against it at this point even though Janet Yellen had pretty much laid the foundation for what would warrant more QE and these criteria have been met the way Goldman sees it. Is the fact that the US printing more USD will get a backlash from the world it doesnt want on top of the fact it will most likely cost Obama the election. Here is what Goldman sees as the options from a Q&A article by Goldman.

Q: Will the FOMC ease monetary policy?

A: Probably. Although renewed Fed easing by mid-2012 has been our forecast all year, we felt more uncertain about this view a few months ago given the temporarily better data and the apparent shift of the Fed’s reaction function in a more hawkish direction. But at this point, we would be quite surprised if we saw no easing this week.

Q: How large will the program be?

A: If it is specified as a “stock” of purchases, we would expect a similar size as in past programs, i.e. $400bn-$600bn over 6-9 months. However, it is also possible that the program would be specified as a “flow” of purchases of perhaps $50bn-$75bn per month. Although there has been little talk about the latter option, it enables the committee to respond more flexibly to changing economic conditions and may be optically more attractive if the committee is worried about a political backlash domestically or abroad against further balance sheet expansion. Economically, the effects of the two options are likely to be quite similar because financial markets are forward-looking; for example, if markets believe that a purchase flow of $60bn per month will be sustained over 8 months, this would be equivalent to a $480bn stock announcement.

If Goldman gets its way look out things are going to get weird pretty quick.

Happy Trading


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