Easy to get carried away – just watch out for a few things

coachingfxtraders · Newbie Joined: Oct 22, 2011 Posts: 13 Location: France

Whowww – what can one say. I thought it would be a relief rally – but not to that extent in one day. Ahead of the agreement – mid morning NY time – US traders took EURUSD down just below 1.3800. 27 hours later they had taken it to almost 1.4250. 450 pips up – a change from a depressive bear to an aggressive bull in the shortest time seen for some time.

2/3 of the move was due to the very good mood we got into, 1/6 from stops executed at several levels on the way up and 1/6 from US GDP data – despite being as forecasted – being really good. Good because they put off the thought of US heading for another recession. Definitively a “risk on” day we haven’t seen for some time.

EU leaders set the move and while I have my reservations to several points about what actually was agreed and – not at forget - how to implement this – no one cared on a day when everyone thought they had got rid of cancer.

It’s easy to be carried away and it feels good to do so. Just watch out for a few things:

There are details in this overall agreement that still needs to be worked out. They are technical – to some extent – and they are linked to how the fund can be leveraged – and who are to play the different roles in implementation.

And then there is the ratification. 17 eurozone members have to approve the deal – and that will take weeks. While I think it will go through everywhere – you likely will hear outburst from euro sceptics in Finland and several countries, casting doubts about whether this will get the unity required to go ahead.

I think Obama said it nicely when he graced the agreement – adding: get it done. Not exactly his words – but clearly what he meant.

Further endorsements will come from other G20 leaders when they meet in one week’s time – making it impossible for EU to fail on implementation. It looks like the whole financial world now thinks they are depending on this deal to go through – for the world to survive. How else can we read market reaction yesterday?

Those obstacles mentioned above will trigger “risk off” days and dips for EURUSD of 250-300 pips – not only one – but likely several over the weeks it takes to get this done.

And then there is Italy. Berlusconi got a couple of clear messages from Merkel and Sarkozy over the last few days. Now he has to perform. Market wants to see cuts of deficits and debts. A lot can be done in Italy – he just has to get his act together.

“Risk on” days will take EURUSD higher and by the time it is fully implemented – EURUD is likely at the high end of what has been the case for the last 2 years. There are a few reasons for this and we will go through them – especially as a reminder on “risk off” days. The starting point is that there are not that many good alternatives to the EURO.

Did I hear someone saying USD? Forget it – on risk off days – yes – but not in the long run.

It is the last day of the week and close to the end of the month. The level gives us some interesting technical set-ups for the early part of November. I will set them out in the coaching program over the weekend.

The European session holds nothing of interesting scheduled data or news. The US session on the other hand has a few interesting indicators – especially after yesterday’s good GDP 3rd quarter figures:

• US personal income
• US personal spending
• US personal consumption
• University of Michigan confidence report

are all worth looking into – for volatility today and potential influence on a trend. We will go through them in the Trading – just before – and as they appear.

As of next week we invite traders to participate in our Skype EURUSD Trading Room. Lots of interesting indicators to follow at moment. Make sure you are not missing out.

It’s been a long week with little sleep of lately - a good reason for taking an early weekend and drop following a thin NY session.

Have a Nice Weekend.

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