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USD Collapses But Will It Continue? Forex Commentary October 15th 2015

October 15
04:44 2015

For the last 5 trading days we have seen the Dollar take a sizable hit. I was reading Zerohedge and they had an article pointing to the USD Index “death cross”. For those of you who have never heard this term, all it means is when the 50 day moving average crosses the 200. I always laugh when I hear people talk about 2 moving average crossing as if it means something. While the cross of those two MA’s may not mean anything specifically it does illustrate the dollar is finally slowing down and as a result we could be in for a wave of short term dollar weakness which would put a bias long on both the EUR/USD and GBP/USD. At this point I don’t think a long term direction change has occurred and we will need to see further price action supporting a long term reversal which would include some major support level breaks.

EUR/USD Breaks Daily Resistance

Yesterday the EUR/USD never provided a confirmation entry short from any of the upper listed manipulation points which was obviously a good thing as any short would have quickly been stopped out. I really don’t like the current situation we are in with the Euro right now. Our trades come from knowing where liquidity is likely to be located and then waiting for a stop run of those levels. When you have very poor manipulation points or in some case no listed levels then your opportunities are very limited. When the previous day’s price action is essentially a straight move in one direction that gives us very limited levels to work from and therefore decreases the odds of seeing a trade setup.

As far as a directional bias I think this is a tough call. When you have an extended market like we do today then any short would be fighting the previous long bias. Additionally, given the strong move yesterday any continuation long runs the risk of getting caught by a reversal. On a day like this I make sure I only trade from major manipulation points. At this point I had the overall high as the one and only level for today but it is beginning to break as I type this. If the level is broken by the 2 AM Eastern European start then it should be thrown out.

EUR/USD Chart - October 15th 2015

Pound Surges On USD Weakness

The Pound laid quite the trap this morning after the economic data at 4:30 AM Eastern. Both pieces of data were negative causing the initial spike down followed by a rapid reversal that quickly stopped out anyone who expected follow through on the news to the downside. I think yesterday was a great example of how the bank trading strategy is protected from unexpected price reversals. I say all the time that a forex trading strategies ability to stay out of bad trades is more important than its ability to get into good trades. I was looking for a second push to the downside yesterday and we had one upper manipulation point from which I was looking to go short from. As the market came back into that level the price action never validated a confirmation entry short according to our trade plan. While we can never eliminate all bad trades we can try to filter out as many as possible. 

In regards to today’s trade plan, I will be treating the Pound the same as the Euro. The GBP/USD had a 250 pip move to the upside and that limits the levels we have to trade from significantly. Like the Euro, the current highs are going to be a potential upper level but we need to see further rejection before it becomes valid. I would like to see the market work down to 1.5440 or so before I would take a short on a stop run of the highs. I also have one lower manipulation point I would consider a long from. From this point forward it is up to the price action to validate a trade or not.

GBP/USD Chart - October 15th 2015

Forex News For October 15th 2015

US CPI m/m 8:30 AM Eastern: We have been seeing a reaction to both the headline and core CPI so make sure to look at the monthly number on both. Core CPI is expected at .1% and the headline CPI is expected at -.2%. Generally a .1 deviation is enough to get a 15 pip spike or larger. Even if the market does push further in the direction of the news it almost always retests the pre-release price before doing so.

US Philly Fed 10:00 AM Eastern: Another piece of US economic data that has been capable of creating the occasional 15+ pip spike but has very little follow through beyond the initial move. This month -.5 is the expected number.


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