Hi
Congratulations to those that took yesterday’s trade. It was a high probability trade with close enough to a 1-1 risk reward ratio. Those are the kinds of trades you want to take. Its great to start the week with a win and especially important when the week looks like this one. While 1% does not appear a lot its well over 50% a year in real terms so even the small winners need to be enjoyed.
Today we will see a similar set up and explain a different approach..
Context
I am not a true fundamentalist, and in honesty i lost a bit of respect for bankers when none of them new what 'Sub Prime' meant (that's another days blog). I know enough to read and understand whats going on and importantly to understand how one thing might affects the next. All I really do with fundamentals is watch out for the thing that stands out as wrong. Sometimes you just can’t miss them and today SOMETHING IS WRONG.... So ECB chairman Draghi (No less) comes out and says bond buying of countries can’t be considered aid. That stands out for three reasons 1/Why would he say it? he is basically giving away tomorrows speech. 2/Its completely wrong 3/The market reacted the wrong way. If you throw in the fourth factor that Europe has been mismanaged by a bunch of incompetents for some time and you are left wondering… whats up pussy cat?
If the market believed Draghi was preempting tomorrow’s speech the Euro would be well up… the Euro has fallen so what’s it about. I suspect distancing tomorrow’s announcement from aid is aimed to let governments off the hook who have said to voters they wont fund aid.. But more importantly it looks to me an effort to get tomorrow’s announcement to survive a losing vote the following week for the ESM in the German constitutional court. (Please note i havent researched this link). If it is this brings up two major things… the ECB think it’s at least likely the German court will decide against the ESM, and they are still dumb enough to believe they can structure around such decisions.
Now like I said I am no expert on fundamentals but in the unlikely event any of the above is correct we are in for 1 heck of a week or so…. We can expect some really choppy price action and a major move down if the market feels the ECB lacks credibility. If this is there plan they do....
Technical Analysis
To many the technical picture will look similar to yesterday but there is a crucial difference. WE now have Daily Pivot above weekly pivot, and price below weekly pivot. The price action is confused and the test of DP we were so use of yesterday is not as probable today.
The 4H chart failed to put in a higher high yesterday and gave us our first warning of a loss of upwards momentum.
We are also reversing of the long term channel line.
The Day Ahead –
Really we should stay out today, we are up, have a major announcement tomorrow and potentially an either range bound or choppy market.
The pair is especially vulnerable to surprise news for the next week or so and still needs some caution.
Bias- My overall bias is still short, but I need to wait for some evidence.
NO TRADE:
BEST Short entry: Break of the recent low down to long term support at 1.2485. you may need to be in soon.
BEST Long Entry. I think any longs may be to aggressive to trade and based on a follow up statement from the ECB. To trade long I would need price back above daily pivot and then pulling back for a test.
Other entries
If price breaks 1.2480 we may be able to push in an aggressive entry and have a decent ride. Its unlikely but is the kind of move you need to be experienced to trade and been to trade live (always with a stop)
No Major Due News Today
All the best
PBT
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