Euro woes continue, but this one chart shows new signs of life…


So it looks like the big market moving events might be behind us – for a short while at least…

It’s time to catch a quick breath, but don’t get too complacent. As you’ve seen in recent weeks, you just never know what might get dropped on the market next!

Now I’m not usually a big follower of the fundamental reasons behind price moves. I’m much happier in front of a chart doing a bit of technical analysis.

But some of these situations bubbling up to the surface in recent weeks have been simply fascinating. So let’s take a quick look back now at what’s been moving the Forex markets…

It started with the Swiss…

First, we had the shock decision to un-peg the Swiss franc from the euro. That’s what kicked off the recent market volatility and it’s already almost two weeks since that happened.

It still seems like only yesterday and a lot has changed in that short space of time…

As I’m sure you know by now, ex-West Ham sponsor and UK Forex broker Alpari have buckled and folded under the weight of client losses, and high-flying hedge funds have been cleaned out and shut down by the leap in Swiss franc strength.

But the after-effects are now starting to trickle down through the wider Forex industry…

Brokers have been cautiously assessing their exposure in other pegged markets and many have stopped making a market in currencies like the Hong Kong dollar and Danish krone.

It’s a case of ‘once bitten – twice shy’ and to be fair, after seeing the Swiss National Bank’s decision send some very big players skittling, it would be irresponsible if the brokers didn’t carry out a risk assessment and make the necessary changes.

And like I mentioned in last week’s eletter: I think it’s only a case of the industry evolving. It sometimes takes a shock event to get rid of the weaker hands and create a bit of space for things to develop and move forward.

Next, pressure was applied to the ECB

So once the Swiss National Bank had their moment in the spotlight, all eyes turned to the Europe…

The European Central Bank (ECB) had an interest rate decision and subsequent press conference scheduled just days after the SNB dropped their bombshell. Anticipation of the ECB events was building when I wrote to you last, and they didn’t disappoint.

There had already been speculation whether a policy of quantitative easing would finally be announced, and with the SNB sneaking in with their shocker shortly beforehand, in the end the ECB had no other choice but to finally set the QE wheels in motion.

Mario Draghi (ECB president) announced a policy of pumping 60 billion euros per month into government bonds until September 2016.

It’s an attempt to stimulate economic activity in Europe and to bring inflation up to the targeted 2% per year. But the cloak and dagger way in which the announcement was made certainly raised a few eyebrows…

A sneaky trick to settle the market’s nerves

Numbers quoted by ‘people familiar with the matter’ were leaked online a day early on Wednesday. I’m certain it was a thinly veiled attempt to sooth a jumpy market.

And it worked. The leak had the QE program at 50 billion per month: slightly less than the official 60 billion. But hey, they had to do something to make the leak look legit, didn’t they?

The market wriggled around a bit when the official announcement came on Thursday, but it was nothing like the all-at-once volatility that could have been expected had Wednesday’s pre-announcement whisper not taken the sting out of the market’s reaction.

The news was absorbed and the euro continued its downward spiral against the US dollar into the weekend. And that’s when the next market moving event was waiting in the wings…

Greece vs Rest of Europe (Germany mostly)

Early results from the Greek general election were due to hit the news wires shortly before the retail Forex markets opened on Sunday evening, and when reports started to come in of a victory by Alexis Tsipras’ far-left Syriza party, no one was too surprised.

Tsipras has a strong anti-austerity policy which understandably appeals to a huge swath of the impoverished Greek people. He says he intends to renegotiate and restructure Greece’s debt to the EU, and how militant he is in his inevitable clashes with Germany and other EU leaders dictates how the market sees this situation playing out…

Tsipras will want Greece’s debts cut. Germany and EU creditors can give no quarter. Because taking detailed notes from the sidelines – each with their own anti-austerity movement – will be Spain, Portugal, Italy, and France. If any chink of weakness is shown by the bigwigs in Brussels things could start to unravel very quickly indeed.

But that’s another story for another day. We’ll soon see how this all affects the euro in weeks to come. Rumour has it Greece is expected to run out of money by the end of March so things might happen sooner rather than later!

Phew… so there you have it. A whistle-stop tour of the big three stories of the last two weeks.

So where are we going from here?

Have you ever tried to hold a football underwater and felt it fighting to pop up? I’m sure that’s how the euro must feel at the minute.

EURUSD has been on a relentless nosedive for the last five weeks and now the event-driven selling pressure is off, we might well see a small relief-bounce as it comes up for air.

But the downtrend is still undoubtedly in place. Sell orders will be waiting to smack any upside action back down again.

1.1000 is the next psychological target level to the downside and 1.0000 could be eyed with interest from there.

Here’s a market that loves the currency turmoil

One market that has benefited from the recent currency troubles is Gold. It’s just broken through the downtrend line in place since 2012.

There’s some resistance at $1300 (that’s where it’s trading now), so there’s still work to be done before trading higher, but this is a chart I’m definitely keeping a close eye on.

Gold ($/oz) Weekly close

Be Prepared: Market Moving Data Coming This Week (London Time).

Wednesday 28th January:

19:00    USD    FOMC Statement 

Thursday 29th January:
08:55    EUR    German Unemployment Change
15:00    USD    Pending Home Sales

Friday 30th January:
10:00    EUR    Consumer Price Index
13:30    USD    GDP

Monday 2nd February:
08:55    EUR    German Manufacturing PMI
09:30    GBP    Manufacturing PMI
15:00    USD    ISM Manufacturing PMI

Tuesday 3rd February:
09:30    GBP    Construction PMI

I hope today’s eletter helped bring you up to date with what’s been moving the markets recently. Don’t forget to click ‘Like’ over on the Trader’s Nest Facebook page.

That’s where I’ll bring you timely information on a daily basis. I’ll perhaps catch you there later with today’s updates?