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What We Are Watching
Bank of England Inflation Letter
US Existing Homes Sales
More Greece Drachma Talk: Grexit
First thing’s first, we’ve gotten some slack about our EURGBP short trade idea. We’ll be the first to admit that our exuberance for the trade was a little over the top. Specifically, we didn't account for how vulnerable the Pound would be to selling if it failed to hold above 1.6000 support. That led to a knockout punch on the GBPUSD as it quickly fell to 1.5800 once 1.6000 failed to hold.
That being said, we continue to believe that the EURGBP is a long term short. We were saying this at 0.8300, at 0.8100, and yes even at 0.7960. Overall, the fundamental rotation of cash away from the Euro continues. The way we see it, as long as UK government Gilt prices remain strong, it will reveal that money continues to flow towards the Pound. Nonetheless, we do realize that at a current 0.8080, the EURGBP could keep moving higher and make another move to 0.8100 as key UK Inflation data today could trigger more short term GBPUSD weakness.
Got to give Citigroup kudos for coining the phrase Grexit, about the impending Greece exit from the Euro. While nothing has been set in stone about Greece leaving, market chatter keeps getting louder about preparing for Drachmas. SwiftTick’s opinion is that until the Greek reelections in June the status quo will continue. With seemingly every investment bank issuing some sort of Euro/Drachma/Greece/EU analysis, our conspiracy side is wondering if the current Grexit enthusiasm is being fueled by banks pushing the fears to create additional consulting revenues from their clients.
Facebook Falls, Markets Rally
Shares of Facebook continue to fall and are below their $38 offering price. Regardless of one’s opinion on the shares, credit has to be given to Facebook for basically getting full value for their shares. The Facebook fall though does show just how quickly things change in the markets. On Friday, overall trader talk was about Facebook optimism and just how high shares would trade. WHile on the macro-level fears from Europe were causing global equities to fall and causing risk selling in Forex pairs. However, as Friday went on and shares of Facebook fell, suddenly risk buying returned.
So is Facebook the new safe haven? Obviously not, but with such a heated debate towards the shares, we wouldn’t be surprised to see Facebook trade with little correlation to the general equity markets.
Grexit, LTRO, Sovereign Yields, elections. There is no shortage of noise and headlines effecting the EURUSD. On the technical side, Forex traders are debating whether the EURUSD’s rebound from last week’s 1.2640 low to 1.2820 is a simple retracement in the pair’s overall long term move towards 1.20, or the beginning of an uptrend. On the positive side for the pair is the emergence of higher highs. On the other hand, the pairs failure to hold above 1.2800 reveals that Forex traders continue to be sellers into any strength. Looking ahead, barring the obvious fundamental news which could destroy any technical talk, we are watching 1.2800 and 1.2820 today. To change to a short term bullish bias, we would want to see the pair trade above yesterday’s high of 1.2820 and also close the day above 1.2800. Such a move could trigger further momentum towards the 1.3000 figure.
Intraday Support/Resistance 1.26710/1.2820
After tumbling from 1.6000 to 1.5735, the pair has currently rebounded back above 1.5800, but has hit resistance at 1.5845. However, with little resistance beyond 1.5845 until 1.6000, the pair could be a breakout candidate to the upside if today’s UK Inflation data is viewed favorably by Forex traders. In the event of the pair weakening after today’s news, we are watching whether 1.5800 holds. If the pair finds support at 1.5800 on any weakness, it will reveal that demand that was present for the first half of May is returning to the GBPUSD.
Intraday Support/Resistance 1.5790/1.5845