Pound Continues To Rally But Will It Hold? FX Daily Analysis 3/14/16
Euro Holds Near Highs
What a crazy ride in the Euro last week. With the massive stimulus the EUR/USD made one of the largest one day rallies we have seen in years. The interesting question that has yet to be answered is whether or not this move will hold. I tend to be a perma-bear and logically I cannot believe the market would hold up a massive rally on this data. You have to ask yourself why all the government intervention took place to begin with. Did it happen because they think everything is running smoothly, or did it happen because things are going down hill faster and faster? The fact is you don’t do what they did unless you see massive downside potential. Never in the history of currencies has a single currency rallied long term during a tightening cycle. Here is the counter argument. If this is as low as rates will go, then we have nothing but increased rates and upside from here on out. If you believe that then I have some ocean front property in Arizona I would like to sell you as well.
In regards to today’s short term price action, we will continue to trade with the open directional bias as news cannot start a push. To the upside we have one logical level from which to look for the stop run down. As I mentioned in the daily market preview video, this level is too close to the ADR to take a backside long if we were to break above it. That is unfortunate as it rules out us catching the long on a break higher. To the downside I will be using the Friday lows. This is another solid level as it is officially the point where the long side of the market from Friday goes under water. As such you will have a fair bit of liquidity sitting at that point.
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GBP/USD Continues To Rally On Back Of Euro
Much like the EUR/USD, I simply don’t trust this rally long term. The COT data has still been heavily biased short of the Pound and I don’t see that changing overnight. With that being said we will not know how smart money is responding to the news late last week until the COT release this upcoming Friday. If news had not created the first push to the upside on Thursday then I would be calling this a second push up, and I would be looking for the third and final push today. Because news was the catalyst for the start of this push then we will continue to trade with an open directional bias. To start the week I have two upper levels and one lower point from which I would take a valid stop run. Unlike the EUR/USD, a backside long off of the first upper level is still valid as we would have enough room to hit a full take profit before the ADR is hit…at least currently. If the market were to push down first then that would bring down the upper ADR as well, which could in turn take that option out based on our trade plan rules.
Forex Market News For March 14th 2016
There is no scheduled data that would conflict with our trading for the first day of the week.