Forex Price Action Setups Euro, 'Fadebook' Plummets

The euro got pummeled across the board, which was actually holding serve until former Greek P.M. ‘L-Pap’ (his Greek rap name) commented that the Greeks had no choice but to stick with a painful austerity program or face a painful exit. He also let slip many European states were already making contingency plans for any eventuality (read Greek exit).

Needless to say, the euro got hammered losing over 125 pips on an open to close basis yielding the 1.28 and 1.27 figures in the process. Stop loss orders were likely tripped as there was heavy volume coming in after the European close, suggesting covering of the bounces over the last two days.

Keep in mind the Institute of International Finance said Spanish banks could need another €76B to cover loan losses. Remember, as we stated before, the top 3 Spanish banks are 2x the size of the Spanish GDP and they hold most of the toxic housing loans so if they tumble another 10-15%, you can see more banks being nationalized and the EUR losing 1.26 as they continue to fall. Keep in mind the EU Summit is tomorrow so watch for comments and rhetoric out of there to determine direction.

Meanwhile, the rose scent is coming off of "FacePlant" which got hammered again, losing 3% on the day and is currently trading at $30.80 in after-market trading with over 100mm shares changing hands. Note, the underwriters of this cut the earnings forecasts in the middle of the IPO roadshow, but only told the main investors and bankers (read never went public). Can you say SEC investigation? This likely means it should be trading at half the value of its IPO price, but hey – underwriters have to make their money so screw mom and pop investors who got sucked into the IPO open.

AUD/USD – About To Form Yearly Lows

While the EUR/USD has a record number of IMM shorts which makes it vulnerable to a massive short squeeze on any "positive" announcement coming out of Europe, we feel its best to trade other pairs and instruments for now and one that lines up is the AUD/USD. Why? Because a) it formed a bearish engulfing bar today and b) its about to print some new yearly lows and has some considerable downside play.

Just after the NY close, the pair formed a  yearly low of .9781 and is currently about 9pips above that as of this writing. The last 3 days have formed a series of range bars, but with the heavy selling today, we suspect this is going to go unless there are some serious buyers wanting to come in and play the "oversold" card. We are not sure this is the case and if .9775 goes, we can see further deterioration down to .9675 and possibly the 2011 lows at .9387 which is quite a ways down.

It is possible the range bars will hold serve which means intra-day price action needs to take out the upper barrier of .9930 or the lower .9780 for new models to enter the market, but we do not see many positions being taken inside this range that will move price heavily so will wait for price action clues on the break of these levels for new direction short-term. But we are more bearish and will sell any rallies up to parity for an eventual move back to .9670 and possibly .9387.