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EUR/USD Forex Weekly Recap – December 11, 2011

December 10
09:16 2011

Hey traders,

As for the week ending Dec 9th. I was a bit surprised by the run up late in the day on Friday given the fact that most of the news during the week was euro negative considering the big “plan to have a plan” to fix the crisis. Although there was some positives from Germany on services PMI, factory orders and Industrial production. The fact that Germany alone cant bail out Europe doesn’t change. The BIG PLAN was more or less derailed by Finland and the UK on treaty changes but they seemed to leave that door open still. The euro is still very much attached to risk even though it has waned a bit in the past couple weeks. I think for next week there could possibly be a small run up during Asia Monday and depending on the dribble that flows out of the EZ possibly during London session also.

It really all depends on how long traders buy the line of crap. Considering there wasn’t any follow thru during the US session tells me the US didn’t buy into it. Looking at the result of the last few emergency meetings called and the initial bullish results that followed it seems to me that traders are waking up to the BS sooner each time so don’t expect any bullish moves to last.

The levels on the EUR/USD I will be watching during Asia come Monday will be the recent highs from Fridays US session after London close at 1.3391 and the psych 1.3400. A clear manipulation move taking stops will make me look for the short. Any Intent moves up and I will wait for the 1.3430 daily high from Friday. As for London I will be on the lookout for more bullish dribble from the EZ and possibly look for the long depending on how the day progresses.

In further sifting through my news events of last week looking for a possible explanation of the move on Friday I noticed something very important. It was this statement from EU president Van Rompuy

“As regards private-sector involvement, we have made a major change in our doctrine: from now on we will strictly adhere to the IMF principles and doctrines, or to put it more bluntly, our first approach to PSI, which had a very negative effect on debt markets is now officially over”.

This is actually huge for the banks seeing that they have been taken off the hook for write downs on sovereign debt they hold and in the short term will most likely produce a risk rally for the euro and stocks.

Also considering that ECB President Draghi said in his speech Thursday that the “ECB will provide unlimited three-year funds to cash-starved European banks”

This is also risk positive as it is essentially doing some back door QE since we all know this cash will be filtered to buy more sovereign debt. Of course in the longer term these banks will eventually realize that even though the hair cut is not in the immediate future they do still stand to lose their entire holding a little further down the road. About 3 years.

In reality they have successfully given the proverbial “boot to the can” but will have to recon with it again in the near future. I will be watching Italian bond yields closely over the coming months as this should be the canary in the coal mine as to when things are getting worse. Keeping an eye on ECB actions in the near future is also important. If there is any hint of real QE coming out from them there will be a shake up in Germany which will also have some very negative affects. The jury is far from in on this whole mess.

The wild card here is if S&P makes good on the threat to downgrade just about the whole EU then this could be the kick in the head that they deserve and the start of the implosion could be closer than I think. It really depends on if traders can shrug that off as they have many other disturbing facts. (If it happens)

Stay tuned and be careful out there



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