EUR/USD Wrap Up form Forex-Nation.com

[Forexwatchman]

After a very uneventful day yesterday the market exploded back to life today during both the European and NY sessions. The trading day began with serious market jitters over a multitude of problems: European stocks went down sharply (FTSE and DAX around 2%), oil off around 2 bucks, worries over health of euro zone banks, worries over France’s AAA rating, worries over China’s growth, worries over BP oil spill. Risk aversion remains very high.

With regards to the health of the euro banks I just mentioned, the European Central Bank sent announced last night that banks in the eurozone nations faced having to write off another €195 billion in bad loans over the next 18 months. In what it predicted would be “a second wave” of loan losses, the ECB forecast a fresh flood of red ink for eurozone banks that have already written off €238 billion (£200 billion) since the banking crisis began. The Wall Street Journal reports that the U.S. now intends to urge Europe to disclose publicly the results of bank stress tests as a way to calm jitters over health of the continent’s financial system.

France was also a concern today when François Baroin, the French Budget Minister, told local television stations that holding on to the country’s AAA rating would be a “stretch”. The rating does not look to be in immediate danger of a downgrade, but the comments came only two days after Fitch downgraded Spain’s credit rating amid concerns about its economic growth.

On a more euro positive note, French finance minister Lagarde says that exporters were initially complaining about EUR/USD at 1.4500 but they are not complaining now so the lower euro must be working for them. This is going to continue to be an important variable in the recovery of the EZ since a cheaper euro should mean a larger market share for euro zone exporters. Also German jobless total in May (seasonally adjusted) fell 45k, better than median forcast of 20k. Unemployment rate also fell to 7.7%, better than expected 7.8%. Also Italy appears to have things under control for now. According to the Italian Treasury, the January-May deficit stands at 50.1 bln from 56.2 bln for the same period last year. The May 2010 figures even includes 2.9 bln in funding for Greece. I'd call that an impressive feat for them, and it certainly takes the cross hairs off of them for the near term. Lastly, Euro zone April unemployment 10.1% Up from 10% in March, highest rate since June 1998.

The EUR/USD finally found some strong bids at the daily S3 (1.2113) and began a rapid rebound back above the previous European session open once New York woke up. We got as far as 1.2355 before the short covering rally sputtered out, and it doesn't appear to be anything other than that for right now. If we close above 1.2340 (the hourly downtrend line drawn from May 10 high of 1.3092 and May 28th 1.2453 high) then more topside action should be in store for tomorrow. Here's some possible levels of support on the pullbacks from 1.2111/1.2354: 1.2297 is 23.6% 1.2261 is 38.2% 1.2232 is 50% 1.2204 is 61.8%. I don't think it is entirely out of the question that we should see more momentum upwards through the rest of today's session, but look for the opposite to happen for tomorrow's Asian and European sessions. It seems to be here lately that whatever the market does during the New York session, it then reverses during the Asian sessions. I am continuing to watch my downtrend line on the hourly charts. This recent rally respected that line very well so it will provide another sell entry if retested again, but look for a continuation upwards if it is broken today.

 

[Forexwatchman]

Two reports from a very high profile U.S. consulting firm helped put pressure on the euro during today’s sessions. One report said the SNB cannot sustain intervention in EUR/CHF as it has been doing. The second report said conditions are sufficiently dire in the euro money markets that the ECB may renew its 1-year long-term refinance operations, which expires next month, that was responsible for pumping over EUR 440 billion into the market last June. The ECB announced months ago that its was ending its LTRO funding operations but has been forced to reinstate both the three and six month refinance operations when the sovereign debt crisis intensified last month.

New fears also arose over Hungary becoming the next Greece which also helped further undermine euro as EU resources would be further strained. They’re not a member of the euro but anything that drains strained EU resources is not a good thing in this environment.

The failure to maintain levels above 1.23 and the top three points just mentioned help summarize why EUR/USD came back under heavy pressure today. We fell as low as 1.2152 and ended the NY session very close to the lows. Protection of China’s 1.2100 barriers is expected from about the 1.2110 area and central bank bids can’t be ruled out after a wave of selling from the usual suspects around the 1.2320 level in London this morning.

Looking ahead for tomorrow’s big NFP report, Goldman has raised their non-farm payrolls estimate to 600,000. On the downside, they see private payrolls growing a below-consensus 150,000. The market expects 190,000 private hires and a 513,000 rise overall. Apparently whisper numbers are ramping even higher. CNBC reports talk of payrolls 700,000 tomorrow. Whisper numbers of 700,000+ were heard all afternoon, most of them census jobs. As I just stated, Goldman sees 600,000 but only 150,000 private sector jobs and that’s the number you want to focus on for tomorrow! The consensus if for 513k including census workers, 191k for private sector jobs. Overall, the US data so far this week has been solid, but it no longer appears to be accelerating so look for a whipsaw reaction if the private sector comes in anywhere near current estimates. Good luck to you all!

 

[Forexwatchman]

After achieving a 4-year low of 1.1875 last Monday, the EUR/USD closed last week at levels above 1.2100 area, shifting the pair's near-term risk to the topside. Many experts are calling for a corrective rebound to 1.2330 and 1.2445 before we see a resumption of the main downtrend from there. I believe we could see the upper 1.2500's reached if fundamentals continue to come in solid as they have over the last week. The consensus for this weeks’ Eurozone industrial production is for a lower amount than the previous readings, however given that April’s EU manufacturing PMI came out at a 46-month high and that German manufacturing PMI data showed its fastest sector growth since 1996 could mean there is significant upside momentum available depending on this months data. Germany and France both account for around 50% of EU growth.

So looking ahead for tomorrow we have German ZEW Economic Sentiment coming out and then on Wednesday EU CPI reports are due. As stated above, the results of those reports will either add to the current rally or stall it out. Keep in mind that there is also lots of data out of the U.S. on Wednesday (PPI and Core PPI to name a few) that could interfere with the current rally so I would advise against trading based exclusively on the data. Watch you charts and keep an eye on those key fib levels (38.2, 50, and 61.8) and previous support lines now turned resistance, especially if they sync up with weekly and daily pivots. I've got to be short and sweet due to some unforeseen and unwelcomed "problems" that have arisen lately so although the site might not have as many updates, I will be checking in on it just as much over the next week so feel free to leave questions and comments as always. Good luck trading!

 

[Forexwatchman]

The Euro reached a 2-month high after breaking above 1.2700 and continuing up to 1.2737 reaching the highest price since May 12. As I write this, my smaller time frames (hourly and 15 min) show extreme overbought conditions and it's a safe bet that we will see the EUR/USD trigger some bearish corrective movement now and into the close of New York's session. Most analysts that I keep up with say to watch for 1.2660/70 area to be the key: if it's under, corrective movement could extend close to the 1.2600 area, while if price holds above the level, price action should resume bullish trend.

I traded two classic setups according to my strategy and using the 1 hour chart. First, during the initial morning hours of the European session when the EUR/USD was falling, price action reached the daily S1 and came within 5 pips of the Weekly S1 as well, triggering a high probability buy that I managed to leave open during the subsequent rally that took off when New York opened its session. We then just had what's known as a tweezer candlestick formation occur on the hourly timeframe for the 11:00am and 12:00 pm candlesticks. Whenever you have price action at extreme levels and two consecutive candlesticks close moving in opposite directions (bullish candle followed by a bearish one) and both of them have tails or wicks of equal length, that's usually a great entry for a corrective move in the opposite direction of the initial surge. Hope that makes sense, if not feel free to comment. Sorry, but I'm not leaving a graphic up for this one, but it's better to discover these things on your own charts since most every trader I know has a customized chart anyway.

So looking ahead, again watch the 1.2660/70 area as I just mentioned for an indication of which direction we are going to go in for the rest of the week. Of course news will effect this recent momentum as well and coming up tomorrow are several key economic releases out of both the U.S and Europe to pay attention to. 1.2880 would be the next big resistance area to watch for as that was last year's lowest level of support in mid-April, so it should now become crucial resistance for this pair to overcome now that the other levels are out of the way. Also the 100 day MA is approaching above the 1.2937 level. Good luck trading!