March 8, 2013 EUR/USD, GBP/USD Commentary
I have to admit Super Mario threw me for a loop yesterday. I totally believed he would do a Euro dump rather than go back to his pump so quickly. What was rather comical was it seemed rather easy by saying inflation expectations are low along with it being surprisingly lower than they thought and risks for higher inflation due to high oil prices and taxes are there. What all this gibberish means when it comes to the ECB is since price control is their only mandate when inflation is seen they will most likely raise rates. NOT. Why do I say that? Because they cant raise rates with the rest of the Euro Zone in recession and many in depression like scenarios. If they did it would surely run straight to the core countries as even more fall into depression. However it was enough to create the spike we got along with a daily close above the daily 200 EMA .
So we are left with a one day move of 150+ pips and a clear first push to the upside and a small bias for the continuation. With this being a news driven move I am a little skeptical but it is what it is and the smart money trend is a big factor. Having said that I will be looking at taking a long from either the hourly 200 EMA around 1.3080 or the break out level of 1.3070. Im not ruling out a short possibility but the safest entry for it will be on a stop run to yesterdays highs of 1.3117 and would be much lower risk since if the hourly candle closes above the level I will get out with a smaller loss.
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The GBP/USD had a similar reaction to the BOE. It was definitely not the same in scope but never the less a nice spike off the announcement that they would be reinvesting their asset purchases into longer term securities. pretty much doing the same as the Fed did during what was called QE light when they did the same and sold their short term bonds and then bought the 5 and 10 year treasuries. What this does is effectively let them continue printing money but have no increase on their balance sheet. By extending the maturity of their holdings they can keep interest rates low while they extend the maturity and therefore the risk on their balance sheet looks better. However in reality this is really not the case. Sure it looks good for now since the size of the balance sheet dont increase but what it does is increase the risk at a later date. The thing is the 10 year note is what is mostly looked at when they determine the debt sustainability of a nation. this is why when spreads of Spanish and Italian debt got around 7% they had to do something to bring this down since they would never be able to pay the interest at that level for 10 years. The UK is no different. In all reality they will buy some time buy I highly doubt they bought enough.
Since we have this spike that was 80% retraced during the US session my view is this was most likely a false push or just a retracement on news and I will be bias for the short today. Depending on how the Asian session leaves the box the first place I will look for the manipulation will be the Asian highs at 1.5025. Otherwise if we do get a decent drop during Asia the breakout level around 1.5009 will be a good place to see it also. then if we can get the daily close below 1.5000 we should see more downside next week.
Forex News Today
Scheduled releases are light for the Euro Zone with German Industrial production figures expected to rise slightly. If we do see the miss to the downside it should be Euro negative.
The UK has no news to mention.
Of course today is Non Farm Payroll day in the US and with it expected at 160K has room for a surprise in either direction. I do feel a miss to the upside will need to be substantial to create much risk appetite but a smaller miss to the downside will surely be USD negative as more QE could be expected. If that does happen keep an eye on the Unemployment Rate. If it increases it will surely be USD negative and of course if there were enough people who dropped off the limit for recieving there could be a drop which will be seen initially as a good sign but may not last long.
I found this recording of the daily Show and just had to share it. I had no idea the US media was treating this Dow high as all is well quite like this guy. I almost fell off my chair laughing. Sorry I couldnt load the video here so here is the link. Enjoy
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