Interbank market expecting short-covering on Monday morning after Spain and China

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The EUR100 billion loan to Spain, which Gerry mentions below, and the Chinese economic data are likely to lead to some quite heavy short-covering on Monday morning according to interbank sources.

China’s industrial production rose by 9.6%, which was slightly below early forecasts but much better than some of the more dire predictions which emerged after the Chinese rate cut. Retail sales also rose by 13.8%. From a global perspective, the data was relatively downbeat but the domestic economy seems to be taking up some slack.

There are two ways of looking at the Spanish loan; one, that it shows the terrible state of the banking sector (which we knew already) or secondly, that the authorities are finally getting a solution in place. There is of course also the big question of where this money is to magically come from?

Interbank reports, which have the added advantage of knowing where the stop-loss orders are, tip that we will see short-covering on Monday morning as there are plenty of stop-loss buy orders above the market. The first level they note in EUR/USD is at 1.2540 with of course some very large stops above 1.2630, should it really take off. The AUD/USD might also be volatile with stops reported above .9955 and again above 1.0000 (although Sovereign sellers were noted late last week near parity).

 

28 Comments

  1. He He! Loads a Money! PMFx

  2. The stop levels seems nothing if it’s a massive covering, thinking it may be at least 3 to 5 big figures?

  3. Sean, I think Eur will target 1.2735 which is the target based off ichimuko where the next resistance line comes. Also to note that we have 2 gap downs in consecutive weeks in the month of May at levels of 1.29 and 1.31 which are too far at the moment,I do not know if EUR takes off that far. But I think rally here is limited to next week until we know the greek result. Remember the one we had just before the french election – it closed high on the friday close and the fall started after the result. So I think we will see a high close this week too.

  4. Mornin’ Sean,

    Sometimes after a while (years?) you start to get the flow of things and you get a sense that how mass psychology will have an effect in trading. I went short during the start of the Asian session all the way to the European one, and covered when price stalled. Then, I went long at the start of NY session when I sensed there were more upside surprises to Chinese data and price would most likely revert back to “normal” levels – toward the mid-point of pivot ranges! And it did!

    I booked profits a little bit, but left a few solid longs open with the late day spike on Friday which told me that some smart money was urgent to fill in last minute orders that they couldn’t during the day will most likely continue on with a gap open and short-covering rally on Monday!

    Lovely to read something like this from you Sean on Sunday! But of course, there are days after days when I feel like even with several years of trading, I have absolutely NO clue what’s going on and I start to think I have absolutely no grips with the market psychology! Oh and the joy continues!

    Thanks Sean! Hope you are enjoying your weekend – see you Monday.

  5. Sorry to tell you Thomas, but after 26 years of trading I have exactly the same psychological swings :) Sometimes I have the moves on a string and other times I’m the perfect reverse indicator :) Maybe it would be boring to be right all the time? See you tomorrow.

  6. Thanks for weekend heads-up Sean :)

  7. No way is this going to make shorts cover. Things are getting worse not better. This confirms that the euro should make a new low soon. You posting BS about covering is only going to make you look foolish come next week.

  8. Its interesting Eur/usd already buy at 125.39 on some platforms. It’s unusual for a 25 pip rise on Sunday morning. It will be an interesting Monday session. 100 billion euros is much bigger bail out than any expectation (best at 40 billion euros)

  9. Who is going to pay EUR100 billion? Is the euro crisis going to be solved? What about Italy? I can’t understand why people can become so optimistic about the prospect of this currency.

  10. Sean, there´s no 100 billion loan agreement here. There´s only an agreement to try to bake an agreement in late june or early july, for that amount.

  11. Sean, may be you are right that the banks will try to squeeze the shorts on monday. But the Spain news is a complete bluff, air, nothing at all. Spain and the Eurogroup agreed they want to agree. This is from the Eurogroup´s statement: “Following the formal request, an assessment should be provided by the Commission, in liaison with the ECB, EBA and the IMF, as well as a proposal for the necessary policy conditionality for the financial sector that shall accompany the assistance.” So there´s no agreement. It´s a fake news.

  12. I find it pathetic that we are rallying/covering on the news that the Spain situation is so bad that it needs a 100bn bailout after they reassured us they don’t need one for months (and we all know this 100bn will go down to drains and they will be back begging for more) – I just find it very difficult to go long Euro based on this :) But short-covering often is irrational and overshoots – so I just closed the part of my positions that are under 1.28… I see a possible support turn resistance @1.28ish… I am blaming you for those closed shorts if we went south quickly after open, Sean :D Okay, okay just joking! Indeed big thanks for your great effort in bringing us this heads-up!

  13. thanks Sean for writing this on Sunday :-)

  14. Wow the overwhelming bullishness here. Shall I make some contrarian bet after gap open..

  15. I am “ALL IN” in Eur/Jpy from 96.44. I’m going to be rich. This is going to make me a killing. it WILL go up to 110.00

  16. G’day,Sean. Syriza just won, big time, eh?

  17. GalantnostS,

    I am not going to justify this short covering. You are right saying that there is substance. However, I never make my trading decisions based on what politicians say, but on what they do.

    It was clear that Spain needed the money, but they are just too afraid it to recognize it, since people are against it, and against austerity. That’s why they’ve been playing for the last 2 weeks, saying things that they don’t believe.

    Think about QE3. It may be the same thing. Bernanke is just playing around, giving abstract statements. Could it be that he is too ashamed to announce QE3, or he does not want to do it yet because he is aware of the unintended consequences?

  18. I think, 100 billion euro agreement is terible news for Spain and for Eurozone. Week after week Spain claim that they don’t need any help, and now they will take 100 bil. Wow, that was a great game!? That means, next week they can ask 200 bill. Why not!?
    Hm, what will Interbank do, that doesn’t dipend on that agreement, or China numbers, that is just manipulation of the Forex market. Collecting stop losses and taking peoples money! I trade every day, and just read this news between the lines!
    Don’t trade because someone write some prediction, make Your own conclusions and targets! Happy trading everyone.
    Regards from Croatia!

  19. Well there may be some short covering Monday morning but by Friday we will plum new lows. The fundemnetal picture for Europe is probably the worst in it’s history. Now that Spain has admitted it’s stuffed it’s only a matter of time before the flood gates open. As Gerry has just posted, Ireland have already stepped up and asked for a similar bailout, and it’s only Sunday!

  20. some mt4/5 eurusd quote at 1.2540-1.257X now

  21. Hi sean, he he.. Some credit for mentioning about the 100billion bailout into the G8 meeting ;-)

  22. Ther will pe an up-gap just because everyone thinks there will be an up-gap, that’s how markets work. But fundamentally, EUR100B coming out of thin air essentionally means that EUR1 is worth less, simple as that.

  23. Well I see here people having mixed emotions here. But collectively I do not think any one is bullish euro long term but short term is what we are talking abt. idea in trading is to enter trade at good price and cover at reasonable profits whether it’s bullish or bearish it does not matter until ur happy with ur account. I appreciate every one opinion and it gives a nice perspective not to get carried away. Good luck trading and happy pipping.

  24. @Aiser, don’t get me wrong, I don’t trust a word those muppets said back then, nor do I trust they stemmed the crisis here. Fundamentally speaking they just doomed themselves by giving them the special no-condition treatment – now Ireland, Greece and Portugal will want the same cake as well. I still have shorts from > 1.3 and would love the market to be rational and promptly drop like a stone – but if the big players want to preach the idea of ‘bailout rally’ and run stops in the st, I will take some profit for the moment and wait to reshort at higher levels ;)

  25. If there is a pop, that may be a very good fade. As Greg pointed out in middle of the week 2623 is where the major sellers will try testing the bulls again. IMO below 12623 even the short term trend remains down.

  26. Thank you Sean . By the emotions of the comments here its pretty much confirmed we are going to have a squeeze.

  27. Sean,Thanks for the eye-opener,But the Golden-Rule for the Survisor-Trade and Fade/ 1.2720 May just be possible,But 1,2640/45 will do as well.Looking forward to a Long……..Night -Sean

  28. There will be no fade or fill the gap. It will be a huge pop up and Gap up. and we will not fade this.
    I’ve seen this before. I’m already 4.5K in the money and expecting 13K from this rise to 110.00
    If you are short, i highly suggest get out now…..or let your stops in but Don’t Change them. Euro and EJ going to the moon from this point
    My Elliot Wave charts are brightening up as we speak

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