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FX Daily EUR/USD, GBP/USD Analysis December 3, 2012

December 03
01:55 2012

Here we are beginning a new month and we are still in a mode of confusion with no clear direction on the EUR/USD or the GBP/USD. I thought the GBP had the best chance to break to the upside last Friday. However it couldn’t even make an hourly close above the 800EMA on the daily chart that has been holding it back for over a week at this point. The Euro tested the daily resistance level at 1.3020 twice on Friday but was also rejected. At this point it would sure seem like these levels are going to hold but my gut tells me different. The reason is the issue surrounding the US fiscal cliff. It seems as though every time there is a “we have made significant progress” statement its not long after we get a “we cant accept that” or a “they are miles apart” statement. So my thinking is that they are most likely bluffing in addition to just covering their own butts while trying to also make it look as though the other party is to blame for the US falling off the cliff.

The best case scenario in this situation is still quite negative for the economy overall. Even if they cut spending in a dramatic way and they increase some tax revenue in some fashion, either through letting the Bush tax cuts expire or closing the massive loopholes designed in the tax code….TAXES ARE GOING UP which is extremely negative to the economy overall. And yes those loopholes are DESIGNED not something some awesome accountant has found and exploited. They are built into the massive tax code on purpose from the giant corporations that benefit in addition to making it so individuals cannot do their own taxes. Why? Because H&R Block and other tax preparation firms have a massive lobby groups that have squashed any idea of reforming the tax code to make it easier for the ordinary person to do their own taxes. Crazy isn’t it?!?! In my view just simplifying the tax code would have saved both stimulus packages where people got $300-$1200 costing the government over a trillion combined.

The flip side to that would be H&R Block would be out of business, or at least not near this size it is today. So what? This is a company that makes enough money in 3 months out of the year to make a nice profit right? Plus its not really that they don’t work during the other 9 months but they are very slow compared to income tax season. So in reality they wouldn’t really be put out of business but all the fat cats that split the profits each year would see a sharp decline in income. Who cares, not me! I am sure they have plenty of other ways of making money that they can exploit. I could go on with several other ways they could be helping the man on the street but this is a commentary not a book. 

Now on to spending cuts. This one is easy for you and me to understand but it seems that a precursor to be a politician is to have the worst simple math skills possible. Its as easy as saying don’t spend more than you make, and don’t borrow more than you can pay back. Its that simple! Lastly, in order to push your credit to its limits there has to be an steady increase in income over the next several years in order to pay back that debt. Does anybody reading this see that there has been any improvement in government income of any western state in the past several years? Yet they keep on borrowing and spending more. Its just crazy how the powers that be can think this could end nicely. You only have to look at how many people who over extended their credit and lost their homes to get a good idea of how this will work out nation wide.

Ok I’m done ranting for now. 😉  On to the charts

The EUR/USD is still in a third push chop. I do have a feeling it will break to the upside this week but that’s no reason to take an entry here. What I will be looking for is the manipulation into the lows at the close of the US session Friday at 1.2981. If I don’t see it there then Friday’s lows will be the next place I look for a long position. I will only consider a short on a clear hourly stop run to the highs above the 1.3020 level. We did have the hourly close above 2 daily highs on Friday so that does add some bias to the long but who knows where they might drop it to before they are finished accumulating. At this point it is going to take more time to have a clearer picture.

UPDATE: We had good Chinese Manufacturing PMI figures come out this morning causing the pop. If we can get the hourly close above Fridays highs we may only see a test of those highs during London. Thursdays highs will have more support so if the trap is not clear at 1.3026 then it will probably go down 1.3011 or even test 1.3000 before the push up today. 

 1 hour chart of the EUR/USD on Dec. 3, 2012

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The GBP/USD is in a similar situation. In last Fridays commentary I said that this pair had the better chance of breaking to the upside. Once it had the hourly close above the weekly highs it made it more clear but they still had some tricks up their sleeve and there was also some tape bomb news that helped Smart Money create a manipulation move. I was talking to a new member in the Skype group that was already long and told him the potential was there for the move to the next high of 1.6180 if it could just get a daily close above the darn 800EMA . I am still holding to that but I am sure with the big push down he was stopped out at break even. Today I will be looking for this to happen once again but the best possible manipulation points are far away from current price. Considering this I will be looking at where the Asian session box sits as London opens, and first be looking at its lows for the trap move before the push up. If the manipulation is not clear there then I will look for confluence a bit lower in order to take the long setup. The chance for the short is there but I will need a clear stop run to the highs to take it.

1 hour chart of the GBP/USD on Dec. 3, 2012

Forex News Today

There are only a couple scheduled releases of note today with the UK Manufacturing PMI expected to improve but still be below the 50 expansion level. A miss to the downside will be GBP negative while a miss to the upside would most likely only be worth some manipulation unless it pops above 50. Of which I doubt

We also have the Euro group meetings on Greece again. I somewhat expect something to become more solid on taking some action and getting Greece the 44 billion. If this does happen it will create some risk appetite and could be just what we need to get the pop above the 1.3020 level with some follow through.

The US has ISM Manufacturing PMI expected to hold above 50 with just a slight drop. A big miss to the downside and drop below 50 will most likely create more money printing thoughts and the Euro will take off. If we get a miss to the upside my guess is that it will create some risk appetite and the Euro will rise after a pullback. 

Happy Trading


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