Prior to the London open, the China HSBC Flash Manufacturing came out worse than expected, alarming investors globally. This initially sent the AUD and NZD lower but both recovered shortly after to hold modest gains throughout the day.
The situation did not get any better with German manufacturing also coming under expectations? This put salt into the eurozone wound with the worries of a Grexit, and contingency plans for them to leave only exacerbating the situation. This translated into investors realizing no country is immune to this Greek tragedy. Its really a question of who will default first (Spain or Greece) but one will be the match and the other will be the kindle. Doesn’t matter either way as all the European banks hold Spanish and Greek debt in massive amounts.
Keep in mind the funding outflows continue leaving the European banks with the ECB showing €35.4B exiting the EZ in March which has left the greenback and JPY being the main benefactors.
We would like to note two things for traders:
- Markets will be closed on Monday due to the Memorial Holiday weekend in the US so expect lower volatility and liquidity till after Monday NY session.
- The CME has cut crude and gold margins by 13% and 10% respectively. Usually this is a bullish thing for gold and crude, but the last time they did this, they sold off heavily the next day so caution advised if your trading those two tomorrow or Monday.
While all eyes have been on the euro hitting the 2yr lows, the USD/CHF has been approaching multi-year highs (.9600) climbing 230pips in the last 3 days alone. The last time the pair was above this level was early February 2011, so 13 months in between trips. Ironically, the last 2x it has approached these levels, it did so on the heels of a 3-day climb, just as it did this time. Is this a warning signal it may not break? Possibly as the price action looks eerily similar each time with the last two trips here posting a bearish engulfing reversal pattern each time.
With that being said, bears which think there may be position squaring ahead of the weekend can look for price action signals on the 1hr and 4hr charts for a possible short with a tight stop above the key level. For bulls, we suggest either a pullback to the 20ema on the daily chart, or a breakout pullback setup to the .9600 level for confirmation before going long considering its past history here.