NB: Today is the Labor Day holiday in
the USA and Canada, and Forex traders Stateside will not be at their desks.
Trading can be expected to be thinner than normal during the North American
session as a result
The
Eurozone seems to be experiencing something of a perfect storm at the moment,
with weak GDP growth and high unemployment adding to the woes brought about by
low to negative inflation figures. Just this morning the stats for second
quarter GDP in Germany came in and showed that growth in that period, for the country
that is the locomotive economy for the whole Eurozone, was negative, at -0.2%.
The average for all the countries in the Euro area, for the full year, is a
paltry 0.8%.
Over
in the US, on the other hand, GDP seems to be surging ahead, coming in at 4.2% annualized
last Thursday (August 28th).
All
of this has resulted in something of a meltdown for the EURUSD, which began on 18th
– 19th August, after a frustrating sideways range-bound movement for
the first half of the month.
…but we do not chase the market
We
would like to be part of this move down. However, we do not chase the market.
We will await a pullback, of which there is every possibility this week. The
reason for this is that, on Thursday (Sept 4th), the ECB has its monetary
policy statement.
The
Forex market is expecting something concrete, possibly even the announcement of
a form of Quantitative Easing (QE) to alleviate the economic distress outlined
above. However, Mario Draghi and his colleagues are not to be rushed either,
and they are likely to claim that the previous measure taken to ignite
inflation, the decision to allow overnight deposit rates to turn negative, needs
time to work. And EONIA, the measure of these overnight rates, only turned negative
in fact late last week for the first time.
Add
to that the contention by several Forex brokers that short positioning in the
EURUSD is at its highest level in over two years and we have the potential for
any disappointment in the ECB announcement to ignite a short squeeze that will
put EURUSD into a countertrend move that could provide an entry position for
what is likely to be an overall dominant trend in the downward direction –
provided of course that this analysis still pertains at the time when we
instruct the Mandelbrot routine to make its move.
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