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Forex Market Commentary EUR/USD, GBP/USD, EUR,JPY May 14, 2012

May 14
02:16 2012

For a second consecutive Monday we open with a gap. This time it is much smaller than the 70 pip one from last Monday. Closing a 16 pip gap is much easier and this one I am rather sure will get closed. With all the talk last week of “there wont be a Greek government” to “there will be a Greek government” The Euro stayed in a rather tight average daily range as no body wants to be the tall blade of grass and get whacked. Even so it did move in a slight down trend and the gap this morning has popped below 1.2900 which is significant as now the next major support level is down around the 1.2600 level on the daily chart. We are at a break out level on the daily also so its not going to be a straight run but the chance of that level getting tested in the coming weeks are higher.

Today I expect a closing of the gap at first. If not during Asia then London and if for some reason this one cant get closed it will only show more weakness for the Euro than I expect. We have already tested Fridays lows but the gap level is from the lows during the US session Friday and the test there has high probability. My bias is still to the short side and probably will be for some time to come however money can still be made on long positions when nice opportunities are set out for us. Just dont expect a long push.

The situation for the GBP/USD hasnt changed much since last week. It has already closed its gap and is finding support on the 4hr 200 EMA. It seemed to hold its ground last week through some wild swings as the Euro drags it down as I expected but as wee see the long slow move down on Friday I expect there will be some chopping around the 4hr 200 for a session or 2 before it eventually breaks and goes on to test the 1.600 level. This is a significant level mainly because it was hard to break to the upside recently. This would be a level that will hold while the EUR/USD breaks down. However sooner or later will follow suit. Going long at the 200 would not be all bad but wait for a nice manipulation move and get an entry as close to the lows as possible. there will most likely be a stop run down first and you dont want to get caught in it. Dont look for more than 30-50 pips.

The EUR/JPY looks most interesting today with the 1hr pin bars you see below from Friday and the gap already filled. The Euro weakness combined with Yen strength in the markets as of late has potential for the significant move. As of Friday it looks to be a failed 1st level push  to the upside and the pin bars sure look like solid stop runs. During the London session it may just run off with out giving an entry but if it does give a nice manipulation move to the upside I will be happy to short this pair.

Forex News Today

The scheduled news releases are quiet this Monday with some low impact events to start the European session both the German WPI and Japanese Prelim Machine Tool Orders shouldnt have a moving effect but later there is an Italian 10yr bond auction. Many expect the ECB to make sure yields dont rise significantly and I would agree so this may be a non event but if they dont we will see the Euro drop if yields do creep close to 7% or above. There is also Industrial Production from the EZ but I expect this to be overshadowed by any tape bomb news from Greece or the Italian bond auction. There is also a speech from SNB Chairman Jordan. This could be big if they hint in either direction of removing the EUR/CHF floor or increasing it. At this point I dont expect either. With the floor holding and the USD/CHF gaining they should be happy I would guess but should be at least watched.

Today I leave you with the question of who really has the upper hand in Europe? And a video I posted back in March that was so funny for readers that it was the most popular commentary for the better part of a month. It was re posted with the following article on Zero Hedge and I felt it was worth another posting here attached to the article of how the EZ has blinked and is now willing to renegotiate the terms of the Greek bail out. Enjoy.

Europe Blinks: Troika Willing To Change Terms Of Greek Bailout Deal

 From Bloomberg: IMF, EU, ECB Open to Changes in Greek Aid Deal, Real News Says

 The so-called troika of the European Union, the International Monetary Fund and the European Central Bank is willing to make six important changes to Greece’s financial aid agreement if a pro-European government is formed in the country, Real News said.

 The Troika is willing to extend by one year to end 2015 the time for Greece to cut its budget deficit as well as to proceed with a restructuring of loans, the Athens-based newspaper reported in its Sunday edition preleased today, citing “well informed” sources at the European Commission.

 The Troika is also willing to maintain the force of collective labor agreements, to alleviate the level of pension cuts or restore certain pensions to previous levels and to keep wage levels in the private sector and reduce the average tax burden on employees, the newspaper said.

If confirmed, and with Germany having stated repeatedly this will not happen, there is a very high possibility this is just another press-based red herring (remember all those FT headlines of an imminent Chinese bailout of Europe?) seeking to exacerbate the political power grab in Europe,where Germany is now surrounded on all sides, this will mean that the outcome of the Greek elections is no longer relevant, as Syriza will propose an adjustment to the bailout plan, Europe will promptly agree since a pro-bailout “coalition government” of ND, Pasok and Syriza will have be formed, and all shall be well, at least until the next Greek bailout in a few months. Then the country will need yet another priming DIP from Europe, and the fiasco begins anew, only this time with even less money left in Greece to be pillaged and plundered by the country’s creditors. That, and of course, German capital being pledged in the form of more “contingent liabilities” which are anything but.

But for now, between a Greek “solution”, and China easing again, it appears that all has been saved. If only for a few more days, which as the central planning regime is coming to an end, appears the best the planners can obtain.

At the end of the day, it is once again Mr. Panos who explained it all perfectly, and showed just who has all the leverage in Europe.

Happy Trading


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