Risk Aversion Setting In March 11, 2015
EUR/USD Drops With Equities, Risk Aversion Setting In
Price movement across the board shows risk aversion is setting in somewhat at least. The only exception is the GBP/USD that held its lows just above the strong support at 1.5000. Otherwise with equities and risk currencies following suit this a clear example of things getting shaky in the markets. Having said that the probability of this continuing for now is pretty good but that would be assuming there wont be any verbal intervention coming, of which is almost a certainty. Its just a matter of time.
I have already seen articles talking about how the USD strength will hurt the US fake recovery so if for some reason the data starts to reflect this then any thoughts of Fed rate hikes in the near future will go down the tube. At this point I do believe that they will have to do something with rates just to give them self a bit of wiggle room before the next recognized slow down hits but any rate increase will be half or less of the typical .25% steps they usually take. More like .05-.10% is much more likely. I have to admit that I do find it comical that they have potentially massaged the way they figure data so much that the figures may never show the weakness they speak of even though its clearly there to the man on the street. You know, like the BLSBS Jobs data.
EUR/USD Runs 150+ Pips South With daily Close below 1.0759
The move on the EUR/USd yesterday is significant mainly due to the daily close below the monthly level at 1.0759 suggesting that they will be testing lower to the yearly lows of 2003 around 1.0500 another 200 pips down. However I am never thrilled to see that they spike early in the Asian session potentially absorbing shorts so they can pull a short squeeze to the upside. Therefore I did tighten up my stop a bit on my EUR/USD short protecting 160 pips just in case they do push up today. The good thing I do see is that the move yesterday was very efficient so it does lower the probability but I will never assume I know their plans for any given day.
I will have a short bias again today even though they are in extended pushes, the fundamental picture should be much stronger than any desire to flush shorts but of course its always possible and if there is any inkling of the Fed not raising rates the USD will weaken somewhat even if its just short term. Right now the best level for the the short is up at 1.0722 but if the current Asian highs hold they will be valid during London this afternoon. Otherwise the spike lows are valid for a long but I wouldn’t be holding for more than twice the risk taking it.
GBP/USD Holding Above 1.5000
As I expected the GBP/USD is holding above the 1.5000 level for now in anticipation of potential rate hikes from the BOE. Again it will depend on data going forward so I will be keeping an eye out for significant deviations from expectations on the more important releases like inflation and PMI.
I wont be having a bias for this pair today with the safer levels being at the extremes of the range at 1.5133 for the short and 1.5030 for a long. The 1.5096 is valid but even though its a strong level it does carry more risk inside this range.
EUR/JPY Tanks On Risk Aversion
The extended move on the EUR/JPY does confirm the risk off scenario yesterday but that dont mean it will continue today. It did have a significant lower daily close but tested the next daily level this morning with the drop to 129.29 so I will be more open on this pair today as well. So far it looks as though the JPY is running the show right now so as long as the EU dont weaken significantly the UJ will drag this pair up and I may get the short from a better level up at 130.38 later in London unless this 129.96 holds and they run a test band stop run. Otherwise the long from 129.29 is valid but again I wont be holding my breath for a larger pullback.
Forex News Today
The calendar today starts off with a Super Mario speech early in the London session followed by the UK Industrial and Manufacturing production an hour and a half later. I expect Draghi to do some of the Euro pump but it may be short lived once he potentially admits what a mess the Euro Zone is. UK data is expected to improve slightly and while a surprise upward will be positive for the GBP a disappointment should have a larger negative impact.
The NY session dont have much high impact US data but does have UK NIESR GDP estimates. Again any decent move will be based on the size of any miss but I expect it will be close.
Asian session traders have a slew of data coming wit NZD Interest rates and a couple of speeches while the Aussies have Unemployment figures.