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FX EUR/USD, GBP/USD Daily Commentary June 4, 2012

June 04
03:45 2012

The EUR/USD did exactly as expected considering the nasty Non Farm payroll figures. I was thinking they would be better than that but thats why we wait for the release. Im no that convinced that this push up will continue the turmoil in Europe. This move is based mainly on the bet that the Fed will do more QE very soon and it just might. However it seems more like a game of chicken is going on between Germany and the US. I would say Europe and the US but right now its only Germany that is holding the ECB from doing its own monetizing of debt (QE) and more pressure builds on them every day. The Fed is between a rock and a hard place with the presidential election coming up and may need to see a substantial equity plunge before they do more printing so it dont look like the Fed is trying to support Obama for the presidency. In my opinion the ECB (Germany) is going to blink first but I am not putting money on it. We will have to wait for some opinions from Fed officials to see just how close they are to another round of QE.

Looking at the EUR/USD chart we do see the reversal and the considerable push up on Friday after 3 pushes down. This does coincide with the Smart Money Trend. However I also see 3 intraday pushes up on Friday and that may be all she has in her for now since the 3rd push consolidation is not all that clear. I am more expecting a 3rd level chop to last a few days through this price range until the QE picture becomes more clear. At this time I will be looking for the shorter term intraday pushes to trade from with the confluence to give higher probability to the trade. At this time I am open for either direction.

The GBP/USD is in a bit different situation with a 4th push to the downside. As I have mentioned in many of my commentaries there is only one reason the Smart Money makes extended pushes and that is fundamentals. They will never be on the wrong side of the macro picture. There is a higher probability we will see the choppy price action over the days here too as the powers that be try and come up with the next fix all which will eventually fail also but we trade in the here and now so we could see either direction here today also. I see a nice range developing on the 15min chart here so some clear manipulation from that range will be where I look to trade in either direction.

Forex News Today

Scheduled news today is light with the UK having a bank holiday. Form the Euro Zone is only Sentix Investor Confidence expected to drop again and PPI m/m dropping also. The market has most likely priced these in already and I dont expect too much movement but will be an opportunity to manipulate if they surprise.

The US has Factory Orders and is expected to improve. However there was a revision to more negative figures to last months print so this does have potential to disappoint. A large surprise downward will garnish more chance for the Fed QE and may boost the Euro for the time being.

Who is going to blink first? 

Here are a few things to watch out for on the tape bombs soon to be dribbled out from who knows where. Watch out for the rumors.

What we are trying to see are the issues that will press the ECB into printing first. They dont have to just print as they still have room to cut rates. they can also start buying up Spanish and Italian debt but most likely wont until its too late. The fact is Spain has gone the way of Greece and not doing anything to control spending so the ECB is letting them suffer with the yields getting to 500+ basis points above German bunds. The Spanish president Rajoy has said Spain will never need the bail out so get ready for that bluff to be called. With Spanish banks at the edge of a cliff and the run on banks starting it wont be much longer.

The Greek vote seems to have lost its shine but still represents an issue as time ticks away. The polls will get more and more attention even though they are worthless and the French have all but admitted they want the election fixed so a pro bailout government can be formed. the most likely scenario in my eyes is a repeat of the last and Greece goes as Belgium with no government and  the plot thickens.

The US is showing that the decoupling theorists are a bunch of fools who have no understanding of how interconnected world markets are today and we all are interdependent now. Who ever it was that thought up this New World Order should have listened to the saying of “Be careful what you wish for. You might just get it”. At any rate what we need to see to get the US to blink first is stocks to tank another 10% or so and they will probably have enough reason to print but will cost Obama his job. Not that Romney is any better. When this does all go belly up I wonder who will be the one history blames. Im sure the list will be long and lets hope they get strung up in the town square to set an example. Even though I doubt that will happen.

Happy Trading


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