In Forex and Futures Commentary

Update: I've been active on Twitter today walking through these motions on the drop.  Please refer to the feed for some quick explanations in terms of how this gets approached and as it moves.

I am always hesitant to just go ahead and mark things up sometimes because this market just changes so quickly, and those that aren't paying attention / listening to the feeds would think that things really are so simple.  The other day I missed something and I'm not the type to just go ahead and run back to the blog to make note of it.  EUR/USD's high came off of the 1.3800 handle after the yield-driven drive 2 days ago.  That mark coincided with 78% of the high from the last spike base and also filled a local gap leading lower.  For longs, this was an ideal spot to exit.  Given the bearish pressure on this pair and size of this last range this is simply a good area for a reaction.

All the other levels mentioned remain virtually the same.  This recent low that is getting approached (1.3485-80) has some heavy demand interest being touted around it.  Here's my quick take on that:

For EUR/USD just to make a simple double bottom in this type of situation, while not unheard of, is usually a hard prospect. Today, we came just above it. If the low breaks, it's likely to take out some interim stops and head 20-40 pips lower, before it comes back and “neutralizes” back into the 1.3580-85 area.  At that point it can either use that range as resistance and head lower or wedge higher via order accumulation.  This situation is contingent on momentum being momentum and not driven by any “catastrophic” events, of course.  The 1.3460's seem to the more probable immediate area for any slow down in this event. Regardless of the size of a lower cut, I would still expect it to retrace back into this area.  If things do indeed get nasty, I'm still eyeing the area around the 1.3400 handle.

But what else is there? Consolidation, seesawing back and forth much like the zone we experienced last week.  Before something else concrete comes our way.

Things are poor, but even with all of the catalyst being fueled into this market EUR/USD is still resting 400 pips higher than its October low, which in and of itself should tell you something. Whether it was the massive spike higher in late October that has everyone on edge or uncertainty over events in troubled nations, more selling pressure was ceraintly expected by the masses…..too obvious.

As a reminder, the ECB is still expected to cut by another 25bps at the next meeting.  That kind of strong expectation could easily be enough to keep the pressure on and want to send it lower.

EUR/USD's reaction to rising or falling yields have led the bulk of news activity this week and once again, today, the correlation remained intact.  European bonds, led by Italy's climb over 7% yet again, led the fall.  As I write France is now in the spotlight, as investors wake up and start to point interest at their high exposure to Italian sovereign debt.  Bottom line: when you're talking yields, just follow the flows.

Here's another link to ZeroHedge's free news feed, in conjunction with Ransquawk, so you can stay on top of things:

Current touted flows:

And le chart:


Source: Deutsche Borse, Market News International

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  • David

    Brilliant article! It’s a clear summary and application of the articles recently posted. For me it finally makes sense.

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