Weekend Gaps Close Waiting On Fed June 16, 2015
Risk Aversion Subsides Awaiting FOMC
As any potential for Greek deal whithers away the risk aversion causing the Monday gaps has gone away for now. As usual it seems as though they will be waiting on what Yellen says at the FOMC tomorrow before they either continue the risk off move or more likely continue the bounce in equities off this months lows as the Fed talks up the US economy and does not increase interest rates. I would be surprised if they do increase rates tomorrow but it is surely possible. The way I see it is they might be sort of desperate to get rates higher so they at least have some ammo when the next down turn comes. However the problem is they also are aware that an increase in rates could actually cause the start of the turn in all the so called good data.
Think about it this way. The so called recovery is in its sixth almost seventh year which is also the cyclical time frame for slow downs after previous so called recoveries. That being said the data dependent Fed will have to be doing something in the near future if they want to give any room for a rate cut before another round of QE if/when the data starts to become worse. On the other hand they also dont want a rate hike to be the catalyst for the next slow down so they are being very careful. Of which is why the probability for a hike now is low and will increase as we get closer to the end of 2015.
EUR/USD Closes Gap
The closing of the Monday gap on the EUR/USD shows there wasnt much conviction in a risk aversion move but they also werent willing to push higher even though it closed around itd daily high. At this point its more likely they will hold it in the range waiting for the FOMC tomorrow unless we get some miracle in form of a Greek deal. The best level to short is at 1.1283 but seeing them run stops to yesterdays highs would be best. Otherwise the 1.1190 is the safer long entry with 1.1248 being a higher risk level so if I consider an entry there I will need to be able to minimize my risk.
GBP/USD Valid Second Push
Although the GBP/USD has made the second push I am not at all happy with the conviction or the potential levels most likely for a turn. I will be bias for the next push up but if they cant hold above the 1.5585 during Asia and push upward so they have enough room to test during London then that will likely break for a test down to the breakout level at 1.5545 or lower. I will not be considering a short as trading against a second push is too risky.
EUR/JPY Closes Gap Back Into Chop With EU
With the EUR/JPY back in lock step with the EUR/USD and the up coming FOMC this pair is likely to hold the range as well. The best short level being 139.30 and safer long from the lows at 138.08. There are the two higher risk levels in between that add risk so I wont likely trade them today without something very clear considering both pairs.
Forex News Today
The calendar starts early today with German CPI expected flat so I dont expect much baring a big miss. Next is UK CPI data expected to rise above zero. Any disappointment will likely cause a deeper pullback on the GU but may be mostly taken up in the EUR/GBP. A miss to the upside should start the next push to the upside in GU. Thirty minutes later is German ZEW Economic Sentiment expecting a significant drop. This is most likely somewhat priced in but any large deviation has a good chance to start a sustained move on the Euro pairs.
The US has Building Permits and Housing Starts. Its hard to say if these will drop as expected considering the better recent housing data. If they are close to expecteations it should weaken the USD somewhat while any miss above previous releases should be USD positive.
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