EUR/USD Close to Lows
Good Morning,
Here we are. Three Central Banks reduced borrowing costs within 45 minutes (ECB, BOE, Bank of China). I have said all along that the further economies deteriorate, necessitating this kind of action, the closer we are to a top in the equity markets. Whether it is QE3 in the US or some other action by a foreign central bank, the effect of lower interest rates has to become more and more muted.
Remember, the reason they are taking these actions is because things are really bad out there fundamentally. Economic data is getting worse around the world and that to me is so important because it is factual data. No theories, no guessing about a political outcome, just the facts! The most recent batch of economic data came today in the form of claims, ISM Services and ADP Payroll. Claims were better than expected, but still very, very close to the 400k mark. ISM Services headline came in below expecations. New orders dropped to an 8 month low and employment actually came in above expectations. ADP Payrolls, a private company report (so I don't put too much weight in it) came in above expectations. Again, take that on your own merit. The real data is tomorrow with the monthly jobs number. I am forecasting a range of +200l to -200k. If it comes in below 50k, look out below...
Technically, on Monday I talked about the "inter-market relationships" between the equity markets and the GBP/USD and EUR/USD. So let's look at SPX first where we did get a breakout, but now we are sitting back on that breakout level:
Past performance is not indicative of future results
Now, let's look at the GBP/USD, which was sitting at resistance and I mentioned that if the equity markets could break out, would the GBP break out:
Past performance is not indicative of future results
Obviously not! Similarily look at the EUR/USD, now close to its 1.2281 low:
Past performance is not indicative of future results
So, be wary of an equity market that is getting more stimulus, but has resistance ahead. I am not sure how low the markets will go if we do roll over due to the "constant search for yield", but the prudent thing to do seems to be to protect your portfolio. The VIX seems to have decent support around the 16.50 mark:
Past performance is not indicative of future results
If equity markets drop, there could be a BUFFALO BOUNCE opportunity in the EUR/USD if the EUR starts to break to new daily lows.
Happy Trading and Be Environmentally Cool Coach Brian
Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.
