Forex Price Action Setups (NY Close) May 10th
Euro, Dow Produce Dead Cat Bounces – JPM Drops A Bomb
After selling off for 8 days (Euro) and 6 days for the Dow, the markets produced a meager dead cat bounce in the two today, clinging to any relief they could get. Today, it came in the form of US claims data coming in around expectations. This really isn’t a lifeline, and more of a string of yarn to a desperate market looking for anything. The EURUSD gained a whopping (hope you are seated) 8pips today on a closing basis and the Dow a paltry 19pts or .16%. Keep in mind, both were up nicely on the day but lost almost all their gains which were short lived on both ends. Although this snaps the losing streak, nobody technically will be excited about this so the bears will be happy to keep the pressure on.
Quite a shock though just hit the markets around NY Close was the out of nowhere announcement from JP Morgan which held an unscheduled call the CIO unit has significant mark-t0-market losses in its synthetic credit portfolio. Here are a few highlights from the statement but they can be best summed up as ugly, painful, and downright scary for the TBTF bank:
-JPM WOULD NEED $971M ADDED COLLATERAL IF RATINGS CUT ONE-NOTCH
-JPM WOULD NEED $1.7B ADDED COLLATERAL IF RATINGS CUT 2 NOTCHES (and what about 3 notches???)
-As of March 31, 2012, the value of CIO’s total AFS securities portfolio exceeded its cost by approximately $8 billion
Translation: JPM has just taken $2B in trading losses from the guy who was moving the entire market (Bruce Iskill) in the past 6 weeks (ooops) and could face an additional $1B depending upon how this plays out (not including any credit downgrades which would hammer them further). Needless to say, the market did not respond kindly and Bruce no longer has a job. But…there is a likely book deal in the future for him, so there is a bright side :-o.
In after hours trading, the stock is down 6.7% with the S&P down 7pts. The other losers were the AUDUSD and NZDUSD which lost 50 and 30pips in what would normally be a very quiet transition from NY to the NZ and AUD opens. This should put additional downside pressure on the two likely for the Tokyo session.
Tomorrow should be a volatile day with a slew of announcements in China, Europe, the UK and US so don’t expect it to be a tame one tomorrow.
AUDUSD Forms Intraday Pin Bar Off Dynamic Resistance
After bottoming a day and a half ago from a pin bar setup, the AUDUSD offered a forex pin bar strategy after rejecting off the dynamic resistance (20ema) on the 4hr chart today. Many of our price action traders got in on this one so hopefully you did as well as it is well into profit yielding already more than a 2:1 reward to risk play. The pair has touched the support base where the first pullback started so we will watch for price action triggers here and a possible short term buy, but are overall bearish on the pair and will be looking to sell rallies up to 1.0224 for an eventual break and close below parity which we see in the near future.
GBPUSD – Pin Bar Setup Plays Out
The GBPUSD pin bar setup we posted in yesterday’s forex price action setups gave us a nice pullback into the 1.6100 level offering up a 2:1 reward to risk play. Even now, if you still are in it, you’d be up in profit. Now the market is looking a little shaky with a wide range bar and we are already out of it. However, if the intraday charts show some timidness in the pullback, we will consider another possible buy looking for price action triggers on the 1hr and 4hr time frames.
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