Forex commentary EUR/USD January 27, 2012
Today the EUR/USD doesn’t look so healthy does it? It did make it ever so close to the 1.3200 level yesterday but was rejected to finish flat for the day. It would seem that the market is having doubts that all is well. The relative good news for Greece of more European Central banks considering taking it on the chin for the Greek bonds they hold doesn’t seen to be taken as well as I had figured. The ECB did kinda sorta loosen up on its possibility for taken a loss but was quickly scrubbed when the news was released that they are looking into legal ways to fight any loss on their holdings.
I mentioned yesterday that there was chatter in the press that the market is pricing in a $770 Billion expansion of the Feds balance sheet. (AKA QE3) It just so happens that I read an article this morning that seems to me to make much more sense and could be the reason all dont look so well today. It describes the reasons why the Fed will NOT fire up the presses. Here are the excerpts from Phoenix Capital.
The reasons for this are three fold:
1) Why bother with monetary intervention when you can get the same effect from verbal intervention?
2) The Fed is too politically toxic now to simply unveil a massive new monetary scheme without a Crisis hitting first.
3) The Fed is well aware of the consequences of QE (higher food and gas prices) and while it focuses on CPI as the measure of inflation, the political pressure engendered by higher costs of living are certainly on the Fed’s radar.
In plain terms, the bar for more QE is set much, much higher than the vast majority of analysts realize. The reason is that the Fed can no longer simply prime up the printing presses if the economy takes a dip.
To me this makes much more sense than the potential for a full scale money drop. Especially in a Presidential election year.
Getting to the news today the only major release from the EZ is the M3 money supply. Which will give us a peek into how the money is being circulated in the EZ. It is predicted that there is an increase which may be positive for the euro but I expect there wont be much reaction. Then there is a ECB Draghi speech at the WEF later in the day. There is also GDP data coming from the US later in the day of which will be watched closely. Don’t trade on this but I expect a disappointment. The expectation is 3.0% and I just feel its a bit ambitious but wouldn’t be the first time I have been wrong.
Now to the charts. As I mentioned above the daily tells a clear story with the rejection of the close from December 12, 2011at 1.3186. The fact it missed testing it by 3 pips and was firmly rejected tells me the direction today is most likely down and Asia is making the first push which is a bit out of the box so to speak. With the GBP/USD and the USD/JPY following suit tells us risk is off and we could be in for a plunge today and next week. As I type it is testing the support level from December 20th at 1.3080 and it doesn’t seem to be putting up much of a fight. Time will tell.
Looking at the 15min chart I expect it to chop thru the range it has hammered out so far between the lows and 1.3100. As long as the range holds I will be looking for the stop run above either of the 2 levels marked on the chart and intent to the downside to short during London session.
Happy Trading all