Forex-Nation EUR/USD Wrap Up

Trading Discussion News and Economy
21

Overnight we finally saw the 1.3463 support level that has provided so much support for the EUR/USD give way to selling pressure and as I predicted a significant sell-off ensued. It was a quite break though, and made me wonder if the breakout was legitimate or not for quite some time. Several fundamental factors influenced this including Fitch downgraded Portugal to AA-, Industrial Orders came in much weaker than expected, -2.0% m/m, +7.0% y/y, way below median forecasts of +1.9%, +14.2% respectively, and of course there’s Greece and I’ll spare you those details. Even with better than expected German Ifo data, business climate index, and PMI data, the EUR/USD can no longer ignore the 800 lb. gorilla in the room.

If you haven’t placed a sell order on the EUR/USD you might be better off waiting for a retrace before entering the market because the sell-off has reached as low as 1.3333 and I would expect to see support coming back into play around the 1.3300 level with the weekly S2 just below there. I’m short on time so I will have to be brief today, but expect a better summary and analysis later on in the week as things die down for me. Good luck to you all!

22

The EUR/USD sunk lower during Asian and early European session hours thanks to deputy governor of the People’s Bank of China Zhu Min, who said the Greek debt crisis was just the beginning, prompting another short-term sell-off and triggering stop-loss orders at 1.3300 that sent the euro to a 10 month low of 1.3285. As I write this the EUR/USD has dropped to 1.3277 and we could very well see this thing drop to 1.3100 which I predicted seeing happen back in February.

The Euro will more than likely remain volatile as currency markets focus on the European Union summit that begins today in Brussels with its primary goal of a solution to the lingering debt crisis in Greece. There are strong rumors circulating about an actual deal being ironed out tonight, with a mix of bilateral and EU aid. The idea that some German members are very rigid all of a sudden about adhering to the EU treaty is comical, as they seem to have been able to pick and choose what to obey and what to ignore on a daily basis in the past. The ECB bent its own rules today, extending the period in which it will accept low-rated collateral like Greek government debt as collateral. This continues to weaken confidence in the euro as such rule bending is not good for ECB’s credibility, but is actually good for the Greeks as it takes some of the immediate pressure off of them. Once the deal gets made public, watch for the more “European” the deal, the better for the euro and the larger the IMF role, the worse it will be.

Also out of the euro zone:

German Gfk April consumer sentiment indicator holds steady at 3.2%, better than median forecast of 3.1

French Febraury consumer spending -1.2% m/m, much weaker than median forecast of +0.3%

Italy March business morale rises to 84.1 from downwardly revised 83.8 in February, weaker than median forecast of 84.5 but still highest read since June 2008.

In the U.S., Jobless claims fell to 442,000, which was better than forecast. The market had expected a smaller drop of 2,000 in weekly claims and in actuality US weekly jobless claims were down 14,000 in the week ending on March 20 for a total of 442,000 compared to a total of 456,000 in the week before. This doesn’t appear to have had much effect on the EUR/USD as bigger matters loom over the horizon.

As it stands, the U.S. session has been very volatile and hard to predict, causing me some real frustration and retiring early on to avoid losing all my gains from the European session. I continue to see no reason to avoid selling any decent rallies especially above 1.3350. The GDP and Consumer Sentiment reports do come out tomorrow, but I would expect them to be sidelined by any real news about a deal finally arriving out of the EU Summitt (see above). Good luck to everyone!

23

As I stated yesterday, a deal was in the works that would finally be unvailed overnight regarding a Greek bailout. I also mentioned “Once the deal gets made public, watch for the more “European” the deal, the better for the euro and the larger the IMF role, the worse it will be.” Well the details that have emerged thus far put the ratio of funding sources at 2/3rd by EU and 1/3rd by IMF. Thus a small rally has ensued today to end the trading week. The mechanism will only be triggered if Greece cannot get market funding by itself which will eventually happen one way or another. An interesting point to mention was the offical statment from the IMF where the early headlines make it sound as though they remain on the outside looking in. “The fund stands ready to consider any request for financial assistance from any member country,” it says in a statement via Reuters. Did the Europeans just allot 1/3rd the cost of a bailout of Greece to the IMF with no input from the Fund itself? Some could argue that it appears that way from such a “non committal” statement as that one.

The final unveiling of a bailout plan was good news for the EUR/USD as it rallied towards the formidable area of resistance between 1.3435 and 1.3450 but came up short, stalling at 1.3422. Although the last 24 hours were worth a decent rally, I doubt very highly that such enthusiasm over such a last minute patch work of a plan will carry over into next week.

I will be posting a video of all my trade setups for this week and it will be a good one for you to see how traders setup their next trades and use different timeframes and indicators to make their decisions. Check it out over at Forex-Nation!

24

The dollar lost ground across the board today, but it’s nothing major as of yet. Probably a mix of reactions concerning the recently announced EU Greek debt plan and what effect it will truly have other than a temporary rebound in risk appetite. Fitch announced today that it has decided to maintain its negative outlook regarding Greece’s financial security calling for clarity on Greece’s financing strategy. They went on to state that the EU statement of support for Greece is positive for the their credit profile but they are maintaining their negative outlook due to uncertainty of fiscal adjustment within Greece.

News from Moscow regarding the terrorist attack might have given the market more to think about towards risk aversion, but more emphasis has been focused on the progress of the Greek 7 year bond issue which seems to be going ok. Greece is selling 5 billion euros ($6.7 billion) of seven-year bonds, its first debt offering since the European Union agreed to help the nation finance the region’s biggest budget deficit. IMF’s Strauss-Kahn made the statement today: We have provided Greece with technical assistance. Greeks still haven’t asked for financial help. It’s still not obvious today that financial help for Greece will be necessary.

This plus decent euro zone economic sentiment data has continued to add support to the modest rally that the EUR/USD has enjoyed so far. European confidence in the economic outlook improved to the highest in almost two years in March, beating economists’ forecasts and signaling the recovery is gathering strength as a weaker euro helps exporters by making euro-area goods more competitive abroad. It was the highest since May 2008, four months before the collapse of Lehman Brothers Holdings Inc, when things really began to fall apart globally.

I have stayed on the sidelines and will continue to do so as the EUR/USD continues to be real choppy as it digests all the fundamental events of late, and will look to plan my trade setups after the close of the New York session. No major news events scheduled for tomorrow so look towards a continued consolidation and formation of a new range for the EUR/USD as we await Wednesday’s economic releases. Good luck to you!

25

Last night I posted a video at forex-nation of the trade setup I used to catch yesterday’s break from the range with a decent selloff and scored some easy pips. I also mentioned my analysis for today and why I was predicting another decent rally on the EUR/USD. So I feel the need here to toot my own horn and brag a little, as we’ve seen the euro rally from last week’s low of 1.3385 to a fresh session high at 1.3543 and the pair has taken back all the ground lost on Tuesday’s selloff. As I went over briefly in yesterday’s video, this rally might be attributed to the end of the month flows that several fundamental forces produce. One of which is when out-performance in US securities markets relative to overseas markets causes investors to sell the “extra” dollars they’ve accumulated in their accounts and rebalance their portfolios buy buying currencies in the markets that have under-performed. Secondly, UK clearing banks typically make a payment to the EU on the last business day of the month which usually results in a significant amount of EUR/GBP needing to be bought up. It is usually transacted by a European central bank at the 10:00 GMT London fixing, and this is exactly when the rally upwards really took off.

Moving into today’s news, one thing that has been abundantly clear this week is the overwhelming number of analysts who are predicting a largely positive NFP this Friday, but as with most things related to forex, the picture got a whole lot more complicated today as economists, who were expecting the private sector to show a rise of 40,000 in the ADP employment report for March, got blindsided with a fall of 23,000. Thus hopes for a big jump in payrolls on Friday have been dashed by today’s data, which has become increasingly reliable in recent months at predicting the NFP. Analysts believe that loads of temporary census jobs should provide a boost in non-farm payrolls on Friday, but I’d have to say that that is an optimistic outlook that might not prove true anymore. We also saw the Chicago PMI come in at 58.8, lower than expected.

The euro zone data was a mixed bag:

German March jobless change -31k, better than median forecast +10k

Euro zone March inflation estimated at 1.5% y/y, up from 0.9% in February, stronger than median forecast of 1.3% and highest since December 2008

Euro zone February unemployment hits 10% vs 9.9% in January, highest since August 1998. EU unemployment 9.6% from 9.5%, highest since data started in January 2000

Combining high inflation figures with high unemployment equals a bad sign for the euro zone. Add to that the fact that the bonds sold yesterday by Greece as part of their debt consolidation plan performed horribly in the in the secondary market and Greece failed to sell all of the 12-year bonds it offered, placing less than 40% of them.

Looking ahead, I don’t believe the markets will be too lively at this point as the mother of all economic data edges closer towards us; the NFP of course. Look for a continued rally perhaps as high as 1.3568 but no higher than 1.3600 before we see a range begin to form as we head into Thursday’s trading. Good luck to you all!

26

Heading into the new week, let’s take a quick review of last Friday’s NFP report and what effect it could have on the dollar for this week. Nonfarm payroll employment increased by 162,000 in March. We also had February’s number revised to a much better –14K compared to the previously reported -36K. So what that comes down to is that the US economy added an average of 54K jobs a month in the first quarter, which will likely have the effect of boosting the dollar in the week to come. The manufacturing sector also has shown an increase of 17K jobs, 45K for the first quarter. Many analysts will also take into account that many of the jobs that were recently created for the U.S. census (48K, nearly one-third of the total jobs added for March) will be off the books in the second half of the year, so the recovery is still a work in progress. The pick up in jobs needs to continue for several months in a row.

Adding more fuel to the selling pressure on the euro is the recent report from Reuters that the CFTC has reported currency speculators increased their bets on the U.S. dollar in the latest week. Traders have also increased their short positions on the euro to a record number of contracts, thus confirming that selling pressure has returned for the euro. As I mentioned in a number of my video analysis, the 1.3600’s continue to be a significant level of possible resistance for the euro and we could see a return to the lower 1.3200’s this week. Watch those trendlines on your charts closely as the current uptrend has obeyed my line that I have drawn from 1.3267 and 1.3384 lows on the hourly chart. This line was obeyed at the end of the sell-off on Friday so any break of it will signal another possible deep sell-off for the EUR/USD. Look for a new video analysis soon at Forex-Nation. Good luck to you all!

27

The market has moved precisely as I said it would minus one prediction that had the EUR/USD finding support at the weekly S1. It actually blew through it at the open of the New York session and continues to give way to selling pressure. I have been told that there are lots of rumors in the market today of wealthy Greeks moving money offshore, perhaps into London and the U.S. I can believe it, especially with renewed concerns for Greece’s debt popping up as credit default swaps moved 65 basis points higher on the day through the 400 bp level. The higher the bp, the worse the outlook for the euro gets. As spreads widen and talk swirls of wealthy Greeks moving money offshore, traders will turn their attention to the stock prices of Greek banks, particularly the National Bank of Greece which just happens to be traded on the New York Stock Exchange (NBG is the symbol). It is down 6.3% so far today. Also in the headlines today were contradictory reports that Greece was seeking to reconsider the whole IMF role in the debt relief plan drawn up at the previous EU Summitt. The Greek finance minister says Greece has not sought to activate the EU aid mechanism and that they have taken no action to change the term of the deal forged at the EU summit in March, this is according to Reuters. Somehow reports differ wildly depending on sources, so my guess is that there’s a leak somewhere and we just happened to come across it earlier in the European session before the Greece Fin. Min. spoke up. Separately, the IMF says its staff will begin a two-week technical visit on Wednesday.

Little data to speak on out of the U.S. The U.S. Treasury Secretary Timothy Geithner, speaking from New Dehli today, says the US economy is looking substantially stronger. Earlier in the day, he said he expects China to begin allowing a stronger CNY. This is another not so veiled attempt to put pressure on China to basically stop manipulating the value of their own currency to further commerce between businesses in that nation and abroad. He’d better more than hope, since his move to postpone the currency report which would basically call China out on their currency manipulation if they don’t change things will look very cowardly, indeed. I mention this to give further reasoning fundamentally to expect a strong dollar going forward this month.

I am currently still in the trade that I went over in my most recent video and I am fully prepared to add more onto an already winning position as the selling pressure on the EUR/USD shows no signs of letting up. This is one of those times in the market where the fundamentals and technicals are in agreement and thus adds more reasoning behind bulking up your order sizes when entering the market. Hope you are continuing to follow along with me, since so far my analysis have been very accurate, indeed. Good luck to you all!

28

It’s been a rough week for the EUR/USD as anyone who’s remotely aware of the ongoing issues with Greece and the euro zone are well aware. The selling pressure that’s been a result of fundamental forces between the two countries’ economies. A German bank is rumored to have been a big seller on the recent push down below 1.3300. Also the move came as the yield gap between Greek and German government bonds continues to widen which I first mentioned in an earlier post. But the sell-off met the technical level of support that I’ve been predicting would temporarily boost the EUR/USD back up; the weekly S2. Price action met the weekly S2 to the pip before rallying back up 82 pips as I write this. It goes to show the power of weekly pivot points as a simple yet effective indicator that even the big boys pay attention to.

Also adding to the current rally on the EUR/USD was poor US jobless claims and falling US bond yields which are prompting some modest short-covering, while central bank bids below the 1.3300 level also contributed to the present bounce. Job claims came in higher than expected at 460,000 vs 433,000. Nothing to major though. Yesterday was a busy day for U.S. financial government spokesmen who were mostly all still cautious in expressing optimism about the current state of the U.S. economy, although the picture is definately a lot brighter than it was 4 months ago.

But today’s highlight, or might I say low-light, was seeing the president of the ECB, one of the smoothest communicators on the global stage, appear to lose his composure on several topics brought up by reporters concerning Greece. Some say it was his worst press outing ever! It would now appear that Trichet is melting under relentless questioning which will certainly have a negative effect on the euro if this continues. Some of my personal highlights included a response out of frustration where he says “the market is right, the market is always right”, when asked about the market’s reaction to the Greek turmoil. He says it will be right the day after tomorrow when spreads come down again as well… Also Trichet refused comment on the impact of the dive in Greek bond markets impacting Greek banks, which I have brought up on several recent analyses. He refused to comment on the potential for Greek banks to be shut out of the repo markets. Perhaps his biggest blunder was denying having said that inclusion of the IMF in a Greek rescue would be “very, very bad”. Actually here’s the exact quote: If the IMF or any other authority exercises any responsibility instead of the euro group, instead of the governments, this would clearly be very, very bad. Trichet said that on France’s Public Senat television.

Some other data from the euro zone:

Euro zone February retail sales -0.6% m/m, -1.1% y/y, weaker than median forecasts of -0.1% m/m, -0.7% respectively

German February industry output flat m/m, weaker than median forecast +0.6%

Go by Forex-Nation and check out the recent video I’ve posted describing my trades for the week for more detailed analysis. Good luck to you all!

29

A major development happened over the weekend that should have a boosting effect on the euro beyond what we’ve already seen. Bloomberg reported on Sunday that: European governments offered debt- burdened Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates as they try to end its fiscal crisis and restore confidence in the euro. But Greece says they will need a further 50 bln in the years ahead in addition to the EUR 30 bln offered up yesterday by the EU and IMF. The effect of this news produced one of the biggest gaps I ever seen in price action over the weekend. EUR/USD closed in NY on Friday at 1.3490 but after the news which I just mentioned above, the pair opened at 1.3590 in interbank trade, a 100 pip gap. The EUR/USD went on to rally higher during Asia and early Europe sessions to a high of 1.3699, but has steadily slipped farther down once European trading got up and running. Euro skeptics continue to pour out of the woodwork spurred on by a German government spokesman who said a summit agreement would be needed to activate aid to Greece. While the stand ready to help Greece, they seem to be extremely reluctant to actually do so. Clearly they are playing domestic politics here, but domestic politics also plays into the hands of the euro-skeptics. More than likely they are simply trying to keep the euro from recovering too strongly.

Speaking of a euro recovery, both technicals and fundamentals seem to be suggesting that we are preparing to enter a new bullish phase on the EUR/USD. Despite the 100 pip opening gap that I mentioned earlier, we still see less selling pressure than one would usually expect to see after such an opening. Also we have a double-bottom pattern in place on the EUR/USD charts with a possible move back up to the 1.3910 level. Double bottoms in EUR/USD and bullish breaks in AUD/USD and Gold after periods of consolidation, cannot be ignored and with all four taken together it really does look like we should be preparing ourselves for a bearish USD phase. My sources tell me breaks above .9410 in the AUD/USD and $1225 in the Gold price would even strengthen the bearish USD case. In cases where fundamental data conflicts with technical analysis, you must remain skeptical and choose you entries carefully, but always side with the technical analysis. Good luck to you all!

30

EUR/USD worked its’ way ever so slowly higher during the Asian session to 1.3666 as a ‘risk on’ move developed after reports from Singapore about tightening monetary policy by effectively revaluing the Sing Dollar around 1.4%. Talk of massive stops above 1.3700 combined with Moodys comments that Greece’s chance of a rating cut is now greater than 50% also played a role in bringing a halt to the modest rally. Moody also followed those comments up with Greek default risk as a low probability event. That said the Greek stock market is down another 4% today and thus a rally looks to be out of the picture for today. One other development that casts its shadow over today’s trading are reports from the EU that Portuguese growth may be lower than expected and that they need to boost competitiveness and productivity. Another kick in the pants for yet another euro zone country.

Some good news out of the Euro zone today was Industrial Output data, which was better than expected but the EUR/USD did not react to the data due to reasons mentioned above. The market is truly divided this week over Greece, with some thinking that the Greece problem can be put on the backburner for a little while others continue to remain very skeptical indeed. Euro skeptics rule in London but in other timezones we’ve witnessed some decent rallies. Many are continuing to call for an expected rally up into the 1.3900’s, yet the market remains predominately short. The gap created after the Greece loan deal that I mentioned in my last post continues to remain open and thus makes me wonder if we were truly going to see renewed selling pressure then I would have expected to have seen it by now. I believe you can just consider the gap closed at this point.

The dollar continues to strengthen as we have four S&P companies reporting earnings including JPMorgan whose shares were up 2% in pre-market trading following the release of their Q1 results – net income of $3.8bln or 74 cents a share on revenue of $28bln. Fed Chairman Bernanke will be speaking at 10:00 am, I would expect Mr Bernanke to remain dovish as usual. Also out of the U.S. this morning:

US retail sales rose to 1.6%

CPI was up 0.1%

Core CPI was flat.

Core retail sales (ex-autos, gas, and building materials) rose 0.5%

So far, this month’s data shows strong growth with low inflation and stock markets up because of it. It continues to be a difficult task to predict where things are headed fundamentally, and therefore you should continue to stick to your technical analysis in the days ahead. Good luck to you all!

32

We spent Friday and Monday in a risk off mode as worries about the Goldman Sachs SEC charges took over and sent the bulls running for cover. While we’ve seen some moderate bounces during the European sessions on Monday and Tuesday, and strong data out regarding the better than expected ZEW data (German April economic sentiment coming in at 53.0 from 44.5 in March, above median forecast of 45.1), short-covering appears to be the main thing at play in the markets with positioning all wrong after NY basically ignored Goldman Sachs woes for reasons I’ll speculate on later in this post.

Today Goldman Sachs’ reported first quarter profits of $3.5 billion which also helped cushion the inevitable fall from grace that the company will soon face. Don’t be fooled by the large profits though, the company simply scaled back on adding to its compensation pool which was the source of the firm’s famously large bonuses. That helped send Goldman’s overall profits up 91% from a year ago’s earnings of $1.8 billion. So instead of paying themselves this time, they let the money remain on the ledger as profit, how unselfish.

The EUR/USD closed in New York at 1.3488 on Monday and has struggled to maintain a rally in Asian trading. I think Asia basically gave up at that point and early European traders sold once more with the pair hitting an intraday low of 1.3449. This same sell-off was interrupted by the good economic data out of the Euro zone and helped the pair rebound sharply but once above 1.3500 it has been a struggle to make further headway. I would say at this point that EUR/USD sellers have won the first battle this week after the better than expected German ZEW caused a spike to 1.3515 before being knocked back down so quickly. Being unable to consolidate gains above 1.3500 is a definite sign of weakness for this pair right now. But it’s only round one for the week. Also Greece’s 3-month treasury bill auction went pretty well, selling 1.95 bln euros of 13-week securities at a 3.65% yield. Investors bid for 4.61 times the securities offered.

I am not sure what the market is running on out there but there appears to be little substance at the moment. NY was not as interested in the Goldman Sachs fallout as one would have assumed considering the economic times we are in right now. I guess since this is earnings season where companies display there first quarter profits, the risk on option doesn’t seem out of the question just yet. Unfortunately Goldman Sachs like Greece is unlikely to go away anytime soon but the US market is somewhat ambivalent at this stage. Although we can almost certainly expect things to get ugly for reasons already mentioned above, I’m still very cautious of any sell-off being stronger than any rally we see. Right now I am short on the EUR/USD but not expecting to see a major move in either direction, I’m simply playing it candlestick by candlestick. As I am writing this, it appears that the NY session is consolidating at the 1.3450/70 areas with a break to the downside a strong possibility. I’ll post a video soon regarding this week’s trade activity, so check back at Forex-Nation for more. In the meantime, good luck to you all!

33

Serious selling pressure mounts against the euro as a rumor that Spain will ask for 280 billion euros of aid money in order to deal with its debt has sent the pair plummeting. The fact that that nation also has a 20% unemployment rate doesn’t lend investors any confidence either. Spain’s Prime Minister Zapatero made a statement addressing today’s rumors saying: Rumors can damage Spain’s interests and that is intolerable. The rumor is complete madness, he says.

Zapatero’s comments fell flat on the markets as the EUR/USD started the European session around 1.3200 and it was full on sell-off from there as the pair continues to make new yearly lows every hour. Combine these rumors with worries over Chinese monetary tightening, the Goldman Sachs saga, the BP rig disaster, slowdown in Chinese manufacturing, and you come to one conclusion; risk aversion is stronger than ever. European stocks down this morning, some markets heavily, while oil is off close to one and a half bucks (down 3.25%), as well as U.S. equities being down 2.2%, and copper is down 2.6%.

The EUR/USD currently trades well below the previous support line 1.3080, with analysts predicting the next level of support to be 1.2886, but I believe we will see some serious buying come back into the picture around 1.3000. This is for various fundamental and technical reasons, mainly the fact that we are grossly overextended, past the daily S3, 1.3000 is the weekly S3 pivot, and rumors abound that the Bank of China will start making bids to begin 1.3020 levels to dissuade options market makers from making a run to trigger the barriers. BoC seems to be a big player in the markets whenever new lows are being created so I’d expect the current downtrend to stall out very soon. If we see a bounce, I would not expect it to achieve much success beyond the 1.3260’s if it even goes that high. I’ve cashed out my previous sell from 1.3201 for a nice 150 pip profit and I am now waiting for the retracement and looking for the next level of resistance to enter a new sell order. I’m also fighting with every instinct in me to avoid trying to buy into any rallies that will spring up around the 1.3000 area because reason tells me the bulls have less influence than before at sugar coating over what’s going on in the euro zone right now and so any rallies will be short lived. As the saying goes, the trend is your friend.

34

Interesting. I also exited a short from the 1.32 area at 1.302, Im looking to go short again at 1.34, exiting at 1.28. Good luck.

35

Glad to hear you made some profit. It’s been a cakewalk all week so far on this currency pair. My guess is that 1.3400 won’t be reached for at least 2 weeks, there’s too much weighing the euro down to see a lift of that magnitude in the near future. I expect we’ll see a minor retracement prior to NFP on Friday, but I won’t be buying into it.

36

I bought at 1.2820 , Im thinking that the retracement will be a major one, since the downtrend from dec 2009 has completed 5 waves.

37

EUR/USD sunk as low as 1.2691 from 1.2850’s after a flat Asian session lead into a volatile European one . One big change is that the bulls have at least began to put up a fight again, although one could also argue that the recent rallies stem from short covering and profit taking just as well. European traders started the morning with another large sell-off, with hedge funds, Russia and surprisingly the BIS notable sellers just above the low 1.2800’s. The session low seemed to have found a bottom at 1.2730 from where we bounced smartly amid reports of a “well respected” fund buying decent amounts. Not to be left out of the possible rally, an Asian sovereign entered the mix (rumors it could have been China, but no confirmation) and we managed to get back well above 1.2800. The rally North of 1.2800 didn’t last long, when again BIS was notable seller above 1.2800, an indication that the EUR/USD will have to push much harder than it did today to get above 1.2800 again. The huge selling of EUR/CHF was also a factor.

Today Jean-Claude Trichet took on the whole of the assembled media at Lisbon, where he avoided the tough questions, saying the ECB did not discuss purchasing government bonds at the meeting. He will entertain no other questions on the matter. He also gave a long, convoluted, and unconvincing answer on why Greek bonds were singled out for different collateral rules. Greece and Portugal not in same boat, and the facts and figures bear that out, Trichet says.

Also of notable quotes, Merkel said in Parliament that Europe could not handle the Greek situation alone, requiring the IMF to step in. That also helped push the euro to a session low at 1.2705. The Greek Prime Minister also chimed in with “Big scandals” being the cause of the collapse in Greek economy. What about under reporting government deficits?

Also on the wires, the German Eco Min says he is not yet worried about the euro’s depreciation. German March manufacturing orders +5.0% m/m, much stronger than median forecast of +1.2%. He did go on to say that orders data points to a continuation and firming of recovery. We are in “fundamental crisis”, euro stability at stake.
During the early U.S. session, Non-farm productivity eased to 3.6% in Q1, better than expected, but down from 6.3% in Q4. Employers continue to squeeze more work from fewer workers.

As it stands now, I’ve had a great week so far and am calling it a day early. I don’t expect there to be as much market flow as we await the NFP tomorrow, and choppy markets make me nauseous. I continue to focus on fib. levels, moving averages, and support/resistance to base my entries as those indicators work best in a strongly trending market like this week’s EUR/USD. Although everyone seems to be trying to guess where the EUR/USD will finally bottom out, I would advise you to continue to sell into rallies at resistance or fib. levels and not attempt a counter-trend trade as risk aversion is still in full force today, as it has been all week long. Good luck to you all!

38

Who says markets don’t give you a second chance?

A decidedly different tone in the markets today, as the EUR/USD is trading appreciably firmer after global authorities met over the weekend to try and stem Greece-induced contagion. Obviously the first package which was rushed through in order to calm market fears was too little too late. Now global authorities have come up with a 720 bln euros (approx $1.0 trln) financial assistance package designed to stop Greece-induced contagion from spreading (sounds like the plague or something). The 720 bln is broken down as follows; government-backed loan guarantees and bilateral loans worth up to 440 bln provided by eurozone members, 60 bln supported by all EU members through expansion of an existing balance of payments facility, and up to 220 bln from the IMF. This newest package is in addition to the 110 bln EU/IMF Greek support package.

The financial assistance package has certainly improved risk sentiment. European stocks have made hefty gains (FTSE and DAX up around 5%, Portugal’s PSI 20 up around 10%), oil up around 3 bucks, while cost of euro zone debt insurance just got a heck of a lot cheaper etc etc.

The EUR/USD got as high as 1.3093, but currently as I write has dropped back into the lower 1.2900’s, reflecting that there are still a fair amount of euro skeptics out there. Number of ACB’s were seen buying early as well as a UK clearer and Swiss private bank also noted and helped lift pairing over 1.3000 tripping stops. Swiss accounts have been among the most active sellers of EUR/USD into EUR strength. Maybe the SNB is lifting a leg in EUR/CHF? Rumors of a 1.3100 barrier option interest and protective selling just ahead of that level managed to cap the initial rally.

Also helping to bolster the EUR/USD were news reports that the ECB will intervene in government bond markets and join US Fed and other central banks in reactivating US dollar swaps facility. After saying Thursday that the ECB had not even discussed buying euro zone bonds, Trichet said today they have begun to buy them and will do what is necessary. He then says the ECB is fiercely independent and decisions taken over the weekend were not as a result of pressure of any sort. That’s just more talk to calm the markets and not give off the impression that these guys are scrambling together every last resort option before the whole ship goes down.

My sources tell me of sell orders just ahead of the psychological 1.3000 level. Most likely if we see price action rally through those orders, I’d expect there to be decent buy stops not far above there. Today’s main event is to see how the market will take on the new aid packaged and the new liquidity that it provides the market with. The order books have been cleaned out in all directions it seems and that means the market is reliant on fresh flows to generate some momentum. I say you should continue to look for the current rebound as a new opportunity to enter perhaps a longer-term short on this pair as these levels might not be achieved again if the market turns as bearish as it once was this time last week. The temporary boosting affect of the weekend package deal might wear off sooner rather than later, so I continue to look for opportunities to short this currency pair until decent bullish momentum can establish itself. Right now our moving averages remain crossed over in a bullish direction, so confirmation that the rally has lost most of its steam would be a crossover on the hourly chart going in the other direction. Also using fib. lines once price action has shown signs of a retracement should help you pick great levels of re-entry.

Hope your trading goes well this week!

39

After the first $110 billion aid package failed miserably to alleviate market fears, instead sending them into a tailspin last week because it was literally too little too late, the even larger $720 billion EU/IMF rescue package appears to have fallen flat on the markets this week, although it has appeared to calm markets considerably from last week, reflected by the Greek 5 year credit default swap of 484 bps from 510.5 bps at New York close Tuesday and the lack of any further extension of the major downtrend. Also lending to the recent rally attempts was demand for euro’s as a result of Germany’s 2-year 7 bln euros auction and Portuguese 10-year auction today.

Obviously the underlying problems still remain at the forefront of trader’s minds. Yesterday we saw hedge funds and the BIS (surprisingly) continue to sell the wounded euro on any appreciable rallies. In a Bloomberg interview, famed investor Jim Rogers gave the opinion that the weekend rescue package means “they’ve given up on the euro, they don’t particularly care if they have a sound currency, you have all these countries spending money they don’t have and its now going to continue". Meanwhile Nouriel Roubini, also in a Bloomberg interview, has said Greece and other “laggards” in the euro area may be forced to abandon the euro in the next few years to help spur their economies.

Economic data released today shows Euro zone Q1 GDP in at +0.2% q/q, +0.5% y/y, in line with median forecasts.

Euro zone March industrial production came in at +1.3% m/m, +6.9% y/y, stronger than median forecasts of +1.0%, +6.1% respectively

Better than expected German Q1 GDP has lent some support, as provisional Q1 GDP came in at +0.2% q/q compared to median forecast of flat, while y/y rate came in at +1.7% compared to median forecast of 1.2%.

Spain PM Zapatero says government to cut civil service jobs by 13,000 in 2010, which helped temporarily lift EUR/USD to 1.2660 before the BIS jumped back into the market. He also announced cuts to service salaries, regional government cuts, and other cuts to save an estimated 15 billion euros for 2010/2011.

Looking ahead at the order books: EUR/USD: still no sign of Sovereign bids meaning the expected intervention in the markets as yet to appear. Interbank order boards are still quite empty, China still expected to defend 1.2500 barrier option when we get there. Stop loss sell orders seen building in 1.2640 to 1.2620 region after the current rally sputters out.

Yesterday’s market was very choppy and today will probably be much of the same during the final NY session hours, and in cases like that I prefer to use the 5 min and 15min charts to judge short-term support/resistance. I would expect to see a direction begin to form either near the end of the NY session today or later on during Asia’s Thursday session. Remember that Thursday’s often have the biggest flows and are good days for short term trends to develop. Currently I am waiting to see how the recent rally plays out, and I’m leaning towards another sell off before the end of the day. Any rallies that do form should meet with serious selling pressure around daily pivots (today’s rally died at the daily R1) and I would advise you to place tight trailing stops while locking in profit. The name of the game of course is to look for opportunities to enter the market going in the direction of the main trend.

40

Risk aversion has subsided lately, as global stocks are doing better, oil was up over 2 bucks, and the euro had a good morning during the European session, seeing across the board improvement. There are some who have started to argue that the EUR/USD has found a bottom, for now anyways, as the EUR/USD has begun to consolidate and inch it’s way higher over the last 48 hours after achieving its lowest level since April of 2006. A almost perfect hammer (for you candlestick followers) has also formed on the daily chart lending more credit to this argument. As I’ve made mention in previous posts, sovereign names have been selling the EUR/USD for reserve diversification purposes and this will inevitably continue to weigh on the pair but off-setting this is the fact that many professional accounts and hedge funds have been taking profits off the table over the last few days. This might mean we are in for a couple of weeks where we see this pair range much like we saw in mid-February to mid-March of this year. As for now sources report offers around 1.2460, 1.2510 that continue to build and cap rally attempts in that area but a break above there could see a swift move to 1.2500. Any moves back down to the 1.2300’s and especially 1.2270’s should be met with strong support and profit taking. Some very large, “game-changing” stops seen clustered around 1.2700 from medium and long-term players.

Not a great deal of conviction out there today, it would seem, a good sign for those looking for some near-term stability in EUR/USD. I’m sticking to my prediction of a ranging market which means the use of lower timeframes and support/resistance along with pivots (today’s daily R1 capped today’s rally) and trendlines will give you the best indication of where the next near-term momentum changes are likely to materialize. I would caution all my fellow traders that the windfall of profits from the previous 2 weeks will not come as easily over the next couple of weeks. Usually whenever markets panic like that you eventually realize a bottom and then consolidate for several weeks in wide ranges before the tables turn once again both fundamentally and technically, so don’t expect to see moves as fast and as huge as we have been seeing. When currency pairs enter times like these, I lower my profit expectations quite a bit on my trades and look for more trade opportunities while also setting lower T/P’s. More trades with less profit but also less risk. You can always add onto an already winning position but don’t get greedy. Sometimes it’s not the size of your wins but the amount compared to your losses. Money Management 101: let your profits run and cut your losses short. All right, that’s all for now.

41

[B]New Short Sell Ban to be Announced![/B]

The most recent spike downward has been caused by a report from Reuters that Merkel will announce a ban on naked short-selling of stocks and European government bonds tomorrow. Short-sale bans on shares have been used as temporary measures in the wake of the Lehman collapse but this is the first ban on the sale of government bonds! It is a big negative from a macro perspective for reserve managers who want big, deep, free capital markets in the markets in which they invest. IF this is more than a temporary measure, if could be a major euro negative. This also changes my outlook in the fundamental analysis I just posted, but I’m stressed for time now so I won’t be updating that post. Let’s see how the market reacts during the rest of the NY session and tomorrow’s European one. Look for a break of 1.2260 to signal a further decline. It’s almost as if they won’t a weaker euro… Can’t imagine why…