USDX-Equities Fall Led by Airline Stocks – Ebola Scare Oct.14, 2014
USD-Equities Weaken on Ebola Scare
With the first human to human transmission of the Ebola virus and admission that the probability of it being airborne now US stocks took a tumble again yesterday along with the USD. First hit were airline stocks naturally as those companies will be the first hurt by limited travel or restrictions. Late in the day there was a significant dump in both just before the US markets closed signaling things may only get worse when markets open in the US today.
I am sure the plunge protection team was at work trying to hold them up and will be doing the same to prevent panic selling today. The question is will it be enough and will the European market follow suit. So far the FTSE is holding up probably because it has been significantly weaker over the past few weeks. If things do get worse the fall will get much more dramatic. Most know that stocks have been pumped by the Fed and only need a catalyst for the coming correction. At least in the US anyway.
EURO Pump – Or USD Dump
I have to say I am always suspicious of large moves when markets are closed for a holiday. With yesterday being Columbus Day in the US the big boys were closed and explains why we had a decent move during the Asian session. That is to be expected. However the late day low volume move is a whole different story. Something is awry with that. There was an article talking of a 750 million dollar sell but who does that at that time of day pretty much guaranteeing a loss on a large part of the position. And the better question being why? More than likely someone was a bit scared that Draghi will be put in his place later today.
As for what we have with the chart, its best to keep open on direction now. We have a failed second push running back to the first push price area and an out of context move of 161 pips from the Friday lows. We also already have a stop run to yesterdays highs along with a 44 pip drop in the Asian session making the Asian box highs and lows valid as levels for the London session later today. At this point I will be open for the short from 1.2760 while as long as this daily level at 1.2715 holds for the rest of Asia I will be looking for the set up to go long preferably after seeing price leave the Asian box close to the middle of the range.
GBP/USD Lags Behind
The GBP/USD didn’t make the same move as the EU suggesting it wasn’t really USD weakness as much as Euro strength that drove the push yesterday. Equities not withstanding, I would have to say it was more than likely due to the possibility of Draghi getting told what he has been doing with the OMT program he started is illegal and even given orders to “cease and desist” from the European Court of Justice who is hearing the case today. Having said that it seems that the Germans are just looking to impose some rules on the OMT program more or less making any look of success of creating growth like the Fed. They want clear rules and limits therefor making any look of improvement much shorter lived. That would be enough to scare somebody with deep pockets that is heavily short the Euro expecting the ECB print fest to continue unabated.
At this point there is still a better chance that the GU see the third push today although its lower than it was yesterday with a higher probability of remaining in the chop as well. I will have the bias for the short but a little more open for the long during the NY session if I cant catch the short during the London session. The best level to short is up at 1.6107 but considering the rejection it has had above the 1.6100 level its not likely to get there again making the 1.6098 Asian high more probable for a turn if they are going to make the third push today. If they do hold above yesterdays lows all through London then I will be open for the long from there during NY with a stop run below and good entry. With the next level rather far away at 1.6008 taking the long carries more risk.
EUR/JPY moves slowly with the EUR/USD
The EUR/JPY didn’t get the move on Euro strength due to USD weakness against the Yen yesterday. At this point there is still the possibility of the third push down but with the conviction close to the upside already qualifying as an intraday push upward its better to be open on direction. Since we have the conviction this morning I will be looking for the trap at 136.30 to go long in the next couple hours but if it don’t come back I will be open for the short with a push to 136.64 during London as well. Otherwise if it don’t set up for me this morning and they do a stop run to the Asian highs during London I will consider the more aggressive short from there but be cautious because of the conviction saying they will likely test 136.64 later today.
Forex News Today
The calendar today starts a little late with UK expected to drop slightly. I think this will be close but the chance for the disappointment being higher than a miss to the upside. Later there is German ZEW Economic Sentiment expecting a significant drop to just above zero. I would think that this would be mostly priced in but if it does disappoint and drop below zero there should be significant weakening of the Euro. Having said that there is also the court hearing Germanys complaints against the ECBs OMT program. If there are any hints that the court will be ruling with Germany (which I see as more likely) then that may offset any Euro weakness as any full blown QE goes out the window.
The US is devoid on news today so any moves will likely slow during the NY session.
Aussie traders need to keep an eye on the Chinese CPI data tomorrow during the Asian session. Any big miss will have a strong impact on the AUD and NZD crosses.
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