EUR/USD Wrap Up form Forex-Nation.com

[Forexwatchman]

Risk aversion weakens and jitters seem to have resided somewhat for the euro as comments out of Germany reassure the markets that the debt relief package is on its way. Hard-line comments from German officials early into the week sent the markets into a panic, but as I already mentioned in the above post, these comments were mostly posturing by German politicians and not serious attempts to block any debt relief, though much damage has been done along the way. The German Bankers Association renewed their warnings of contagion effect on the other less-than-perfect euro zone countries if quick action is not taken on Greece. This was one example of renewed urgency in German comments over the last 24-hours, highlighting the gravity of the Greek situation. What got the market going was a comment that the EU/IMF want Greece to cut the deficit by 10% of GDP in 2010/2011 with Reuters quoting sources. The market liked the news and EUR/USD traded back into the 1.3270s after dropping as low as 1.3184. Germany seems ready to allow the Greek aid decision before the outcome of the May 9 state election (thus showing renewed signs of urgency on the part of German politicians). European newspapers continue to be all about financial contagion and the downgrades of the PIIGS; not much good news to read anywhere so any EUR rallies are likely to be driven by short covering.

US weekly jobless claims fell 11,000 to 448,000. Also the Chicago Fed’s National Activity Index, a proxy for ISM, rose to -0.07 in March from -0.44 in February, a slight improvement. Over Reuters, Goldman Sachs is reportedly opting to settle its fraud case with the SEC to limit damages to its reputation quoting from a New York Post article.

On the charts I have 1.3270 as my first level of previous support now turned into resistance with 1.3291 just above that. Also adding to the resistance indicators I have one trendline drawn from 1.3524 on April 20 to 1.3389 on the 26th. This trendline capped the most recent rally aided by the daily R1 and overextension according to my envelopes. The next area of resistance above that will be the trendline that I mentioned at the end of my last post and I would consider this line a much stronger one than the latter. By the way, all of these lines are drwan according to the 1 hour chart.

In my opinion the market is scratching the bottom now at this point, meaning we might not see much more of a sell-off before the inevitable correction wave occurs and we see the bulls take back over. Fundamentally the market is onesided right now because of all the gloom and doom out of Greece that I wouldn’t expect any rallies to be long lived UNLESS we see something new coming out of the euro zone to change the tides. In the meantime, I continue to sell the rallies at areas of resistance (mentioned above) and look for new signs of a shift in momentum for the inevitable rally ahead. Good luck to you all!

 

[Forexwatchman]

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.

 

[Forexwatchman]

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 nauseas. 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!

 

[Forexwatchman]

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. I wrote a little lesson on fib lines you might also want to check out. https://www.forexpeacearmy.com/forex-forum/beginners-bootcamp/8530-fibonacci-made-easy.html

Hope your trading goes well this week!

 

[Forexwatchman]

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.

 

[Forexwatchman]

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.

Big News Update

New Short Sell Ban to be Announced!
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...

 

[Ricex]

We are getting to fair value around the 1.20 region in the Euro and this weakness has it's advantages for example exports, tourism and debt. People can buy stuff priced in Euros much cheaper at the moment, increasing commerce.

The disadvantage comes from having to buy stuff that's priced in $'s like oil. This loss of value is generally seen as ok by companies, but what they don't like is this unstability with large fluctuations.

I would not be surprised if the EUR/USD got to parity.

 

[Forexwatchman]

I was being sarcastic when I claimed I couldn't imagine why they'd want it lower. You are correct Ricex, the lower the euro the better from a commercial standpoint, and this is why we've not seen any real intervention just yet (IMHO).

Yesterday we saw another collapse on the euro just as signs that the currency had begun to dust itself off appeared. Germany’s move to ban naked short sales of euro-denominated government bonds, credit default swaps based on those bonds, and shares in Germany’s 10 leading financial institutions was not taken as brilliant regulatory measure but instead as another major blunder by the ruling powers in Germany, truly a huge mistake in both timing and reasoning. What this ban means is that Germany banned naked short selling (selling something without having first bought it, or any plans to do so in the future) in shares of 10 financial institutions; CDS on European government bonds and some European government bonds. The practice is already banned in the U.S. and many other countries. Their reasoning behind all this is to end speculation that it says creates "excessive price movements" that endanger the stability of the financial system. The announcement officially took effect at midnight last night and will last until March 31, 2011. Germany defended it's decision by stating the obvious: the steps were taken due to extraordinary volatility in the European government bond markets and that massive short selling could have endangered financial system stability. Well that worked out quite well at stabilizing the markets now didn't it? Instead things have just gone from bad to worse.

At the same time Germany’s coalition government is also pushing for a global financial transaction tax or financial activities tax, a good idea that would have been better implemented long before now and would only cause more panic if enacted today much like the short selling ban. A financial transaction tax would put a tax on sales and purchases of financial products while a financial activities tax would be applied to financial institution’s profits and bonus payments for executives. Nothing wrong with skimming a little off the top when you're already the one at the top to begin with. The probability of this actually passing is very low though, meaning the powers that be would rather waste time discussing a good idea that has come up too late, rather than practical solutions that could actually be enacted to save this currency before it collapses.

France’s Finance Minister Lagarde was quick to signal out Germany's move from their own line of reasoning by saying France is NOT considering a ban on naked short selling in European debt and regrets unilateral decision by Germany on naked short selling. He went on to explain naked short selling of European debt is useful “for liquidity needs" and calls for meeting of European market regulators on sovereign debt naked short selling.

Consolidation was the name of the game after the smoke cleared from yesterday's massive sell-off. It appears that the EUR/USD has found support at the 1.2135 level (50% retracement of all-time high/low.) Hedge funds continue to sell today while sovereigns lend much-needed periodic support. Market conditions remain very thin, and this mean we could see some very massive moves over the rest of today's New York session. One would have to assume that decent stops exist below 1.2100. I'm at a loss as to how to call it, since less than an hour after I posted my analysis yesterday, the German's bombed the FX market with their most recent bad idea. Who knows what's in store for the rest of the week. Good luck to you all anyway!

 

[Ricex]

I was being sarcastic when I claimed I couldn't imagine why they'd want it lower

I know, sorry I really didn't mean to sound like I was correcting you.

...... btw Lagarde is a woman...... Christine...... lol!!! sorry couldn't resist

 

[Forexwatchman]

Ok, I just wanted to make sure. I value your input regardless! Oh and I apologize about the typo, I guess I should proof read every now and then.