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November 15th, 2012 at 5:12 pm

Euro Stronger Despite Official Recession.

The common currency had couple of good days, gaining broadly versus its counterparts. This happened in spite of weak economic data released on Thursday. In the third quarter, the Gross Domestic Product in the Euro zone slipped by 0.1%, making it second consecutive period of contracting economy. By definition, two down quarters in a row mean recession. Clearly, though, markets are not concerned with that, having boosted the Euro by a sizeable margin.

One could argue the GDP results were expected, thus hardly a market mover. However, the sentiment is positive on news about Spain from Wednesday. That country will be given additional two years to balance the national budget, without new austerity demands from the EU. Most likely, Greece will receive similar treatment, if indeed Brussels intends to keep Athens in the Euro zone. The Union would have extremely difficult job trying to justify different approach towards Greece. Markets obviously saw threats of default receding, resulting in more optimism. In the end, though, this issue will resurface again in a few weeks or months. Realistically, unless some of the Greek debt is forgiven, there is virtually no chance of satisfactory conclusion to this affair.

In the last post, I discussed the CHF-JPY, or more to the point, a buy in this pair, using its hourly chart. The entry was at 84.06, just above the new resistance level. The trade itself happened fast, with rapid price movement, quickly reaching 84.55, where I called it done. Today, this pair experienced even more appreciation, but I was not ready for it, missing the strong move.

Another trade covered here was less successful, initially. In case of the AUD-CHF, its tight range was not conclusive and even though I expected eventual pullback, the initial move up still faked me out. However, a drop to 0.9880 offered tight stop, which I used for a reversal, too. It lead to quick recovery of losses and made for a few pips profit. At this point, I waited for another support to be established, looking for another shorting opportunity.

The AUD-CHF formed another minor low, which provided an entry at 0.9875. In several hours, the price dropped to the 0.97 handle, allowing for 50 pips profit. For now, I am done with this pair or move to larger magnitude charts in order look for another opportunity. On Friday, I will try to trade London opening, breakouts from earlier ranges, if they form. Best candidates are the USD pairs, as discussed on these pages many times before.

Mike K.

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