After days of guessing and speculations, European Union member decided to help Greece fight her growing debt problem. EU Council announced that member states will take “determined and coordinated action” in order to support Greek government. The statement called for taking all necessary steps, including “adopting additional measures”. It fell short of naming any specifics, though, leaving everything opened to interpretation. No details whatsoever. I’m sure they will follow, probably next week.
On balance willingness of EU to support Greece sounds like a good action that is positive for the Euro. Unfortunately markets had other ideas and the common currency fell. Sharply, too. Over 100 pips against the Dollar, and even more against others. Especially Australian Dollar, which had a very strong day all around. In case of EUR one could argue that vagueness of the relief details contributed to its weakness. Well, whatever the reason, this situation exemplifies how difficult it is to trade news successfully. Not an easy task.
Speaking of Australian Dollar, it has received good press today also. This one pertained to employment down under. January job data showed good size increase in January, by about 52,000 positions, which is much more than the estimate. Once again market was very responsive to employment figures, a pattern of late, and Aussie rallied. This rise was pretty good, with most of it happening within an hour of the data release. AUD gained on most currencies, including Japanese Yen.
In the last post I focused mainly on CAD-JPY, as it was the strongest of these pairs. As I said, I had no intentions for more trades until Asian session started. Loonie-Yen made new high for the day, equal to AUD-JPY moving above 79.15. My expectations were for the Aussie to follow, so a buy order was placed at 79.18. Market moved nicely an labor data, and trade was in. Shortly after my target of 80.00 was touched, but for some reason I wasn’t filled and had to close the transaction manually at 79.84, or 66 pips gain. Didn’t even bother to contact the broker and demand correction.
This is the trade in CAD-JPY that I was in while writing last post. It closed during that time. I wrote in error that target was 85.50, while in reality it was 85.30, +55 pips. No more trades here, but this cross as a template for AUD-JPY above. Think I’m done buying these pairs for now, and start looking for sell signals. After all it has been fairly large run up for the time frame used, hourly, so chances are increasing for a correction of some sort. Don’t know at this time how it is going to happen, but typical reversals look something like this.
Pound hasn’t been very friendly to me this week. My planned trades in GBP-CAD are simply not happening, price is running the other way. That’s OK, no trade is better that a loosing trade and I can wait for high probability situation to come along. Currently it would be around 1.6590 or so.
Other Pound crosses did a little better, taking out recent supports/resistances. GBP-CHF and EUR-GBP moved sharply, perhaps even too much.
Pound-Swissy took out most immediate high under 1.6700 easily. I thought the move would stop at 1.3780-90 and establish new resistance point, but it didn’t. Was hoping to be able to place another buy order there. Now I have to wait for a correction, pull back. The way chart looks right now, neighborhood of 1.6730 could provide promising long entry. Details will have to be worked out when ( if ) price, gets there. Something to look closer at in next post.
Mike K.
[...] original here: News are good, but Euro drops. | fxmadness.com Tags: chf, correction-down, crosses-did, down-it-should, eur, most-immediate, other-pound, pound, [...]
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Lucy
http://forextradin-g.net
I can’t make sense of yen now. Everything falling like a rock last week, opposite this week… I’m losing focus, not sure which time frame to choose. What do you think?
Hi Mike, interesting to see GBP/CHF back in rotation. Any thoughts about EUR/GBP?
Thank you for the first two charts. What a difference it makes in my comfort level.
Heather, if that happens, perhaps it is best to leave Yen alone and zoom in on another currency. Something that makes sense? Eventually Yen will return to making sense, too.
Andy, as far as I’m concerned Thursday move distorted the charts a little bit, so I really have no opinion at the moment. Not any different than GBP-CHF, that is.
Prudy, you are welcome.
[...] plenty of question marks going into the weekend. The Euro still gets plenty of attention, after the pledge of support for Greece from European Union leaders. People don’t seem to agree if this action is good for EUR, or bad. On one hand it should [...]
Mike,
Outflows continue to dampen the Euro. Bloomberg data last week was showing that investors were taking money out of European Equities. Given all the problems on the sovereign side, you’re also seeing some outflows in those markets.
My general take on the Euro is that it’s in a lose-lose situation. While we may see a bounce off these oversold levels, I think you’re going to have to see a real positive catalyst (which I don’t see it…do you?)to reverse the downward momentum.
Guarantees on greek debt are definitely a plus, but why are investors going to risk their money on a 6% 10 year greek bond when you can get 3.60% on a U.S. treasury? The risk/reward is just not appealing.
And Greece (like other PIIGS) is at a huge disadvantage because it has no monetary policy control, can’t print money, and can’t spend (as we all known, they have to contract spending due to ECB restrictions).
Lastly, all the restrictions being imposed on Greece and consequently on all of PIIGS and other problematic European countries bodes for a contraction of Euro GDP.
And I thought the cherished lesson of the Great Depression was that you’re not suppose to cut spending and reduce expenditures during a recession? Well, the 3% budget deficit adherence is going to do just that.
Hi,
Year ago at this time long term trends (daily, weekly) charts looked clear to me- everything was at extremes and sharp corrections were very likely. Now long term charts are more difficult to read and my trading gravitated to shorter time frames.
I absolutely agree about the lack of capacity to print money for countries like Greece- it is indeed a disadvantage. Also, any eventual economic expansion should be lagging US. But in my mind the biggest threat to Euro is political. Once EU is committed to Greece, they will have to assist any other member country in the same situation. And we know there are few candidates. It will be impossible to draw a line. Refusal to do so could lead to serious divisions within the Union, up to maybe a break up. I’m not a proponent of doom and gloom scenarios, but assisting Greece now is a big step. As far as trading goes, I wouldn’t make any trades in Euro with holding period outside of few weeks. Shorter is better.
[...] that European Union announced that it will stand by Greece, financial press speculates which country will the next one in need of assistance. Spain is getting [...]
Thanks for the response Mike.
With the current level of uncertainty, my trading horizon is barely beyond 2 days, max.
-Rafael
My pleasure. I try to respond to them all, those that have a point, that is. And vast majority do.