Risk Aversion Continues To Drag on EUR/USD & GBP/USD – September 23rd 2015 FX Commentary
Overall the risk aversion continued to take hold in the markets as expected. Risk aversion is something that changes from day to day and therefore not something you can guarantee for the following day. Obviously you can expect general risk aversion if a clear market sell off is occurring and I believe we are very close to that threshold as I have been discussing for close to a month. Either way continue to watch equities for gauge on current risk aversion in the market. Why is this important for forex traders? Simply put if you have heavy risk aversion and equities selling off then selling the dollar becomes a terrible trade. This would keep you out of any GBP/USD or EUR/USD long and put you on a short bias.
EUR/USD Remains Heavy
As of today both the EUR/USD and the GBP/USD have completed the third expected push to the downside. When we complete what we term as a ‘market cycle’ we then open up directional bias a reversal becomes a higher probability. Its important to remember that in the current climate we could easily see the market continue to push down well beyond a third push. When you have heavy risk aversion or heavy risk appetite in the market general market cycle goes out the window.
One point to mention with the EUR/USD is a chart I shared with everyone earlier this week and updated below as well. On a daily perspective the Euro was breaking a daily trendline to the downside. Typically the initial break is followed by some retracement before continuing off in the direction of the initial break. Don’t be surprised if we begin to see this retracement. I would expect this retracement to stop and for the EUR/USD to continue back down to the downside around the 1.1200-1.1250 level as shown below in the EUR/USD daily chart. As always we would still need a valid stop run short before triggering the actual entry.
Pound Gives Third Push To The Downside
Like the Euro, the Pound gave the expected third push to the downside. Again, I will now open up directional bias and trade either direction from any of the pre-selected manipulation points. From a key level standpoint, the GBP/USD is nearing a major support level around 1.5329 and should this level break we are likely to see even further downside. Another key is the same point I mentioned with the EUR/USD which is the current risk aversion we are seeing in the market. Regardless of the significance of the level I would have a serious concern taking any long setup if US equities are selling off.
As you can see in the chart below we have very limited levels from which to short from. Because we have a major gap in levels that are currently in play, we may need to wait for a new level to form
Forex News For September 23rd 2015
French PMI Manufacturing 3:00 AM Eastern: Surprisingly French PMI has a very high correlation to the short term direction of the EUR/USD over the course of the next few hours following the news. It is important to make sure you get at least a full 1 point deviation from the expected number which is 48.6 this month.
German PMI Manufacturing 3:30 AM Eastern: Another surprising news item is German PMI. Most people would expect this to be more respected as compared to the French news earlier in the day. The price action following this news release says something different. More often than not the price reverses and moves against this news especially if the news comes out counter trend.
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