Forex Price Action Setups (Spain, Greece & The Horror With No End)

Although markets were calm yesterday due to the US Memorial Day Holiday, Spain today asked the EU to act in providing support for fiscally frail governments (read "Spain is begging for help") as its fiscal gaps and banking system (but, but…Bankia is fully solvent you said) are getting pummeled with soaring yields which are punishing the rates on bonds. Again, Spain is 4x larger than Greece so if Spain goes, you have just seen the Titanic hit the iceberg.

Meanwhile further in the Mediterranean, Greece seems to be playing chicken with Germany on wanting bailouts, but not meeting the conditions. Both parties are discussing the bailout but one is pro-bailout and the other is anti-bailout. This uncertainty has left investors not wanting to risk it by holding euros and waiting to see how it plays out but this is beginning to be like a horror movie with no end.

Ultimately, this has benefited precious metals and the USD which we anticipate will continue to stay strong until the Greek elections on June 17th but if you hear about continuing bank runs in Spain and Greece, the pressure will only mount on the euro which is already holding a record number of IMM shorts.

USD/CHF – Knocking On Multi-Year Resistance
As we talked about last week in our forex price action setups commentary, the USD/CHF was approaching key multi-year highs at .9600 which has not seen a daily close above it since early 2011.  The key note about this level was the last two times it visited there, it formed a large bearish engulfing bar each time.

But this time, price has formed two inverted pin bars and is hanging just below the key level.  Either this is because the EUR/USD has a record number of shorts and is having a hard time finding new shorts to break lower (thus keeping this in check), or this is the calm before the storm and an upside break is on the cards. We are watching price action setups here for either a failure on the daily or 4hr charts, or a breakout retest setup with a daily close above this level.