Watch The COT for Euro Traders
Posted on May 7, 2008
Filed Under EUR/USD | Leave a Comment
The euro’s retracement from last week’s low of 1.5360 against the US dollar is only to be expected given the extent and speed to which the euro dollar fell. Learning to trade the counter-trend is an important skill and one which traders need to understand and acquire in order to maximise their trading profits. The forex market is like a carousel and traders just need to know when to jump on and off. Needless to say this is easier said than done as successful trading also depends on the ability to blend the technical and fundamental indicator data coming out of the market on a minute by minute basis.
In my last post I posed the question whether the euro was about to turn and that it would do so because of political pressure. Well that pressure must have worked because the CFTC numbers (COT data) of Friday showed that the previous Tuesday’s speculative accounts had reversed to a net euro short position of -21315 from previous week’s +18907 long contracts- a staggering reversal and apparently the largest speculative euro short position since the currency was launched!! (Net short in this case is the difference between long and short positions of non commercial traders - data from cftc).
Not surprisingly this Thursday’s interest rate statement from the ECB will be scrutinized even more keenly as the market listens for clues regarding future monetary policy. The statement is given at a press conference and covers in detail the factors that affected the most recent interest rate decisions as well as the overall economic outlook and inflation for the eurozone. Traders can expect heavy market volatility.
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Posted on April 25, 2008
Filed Under EUR/USD, Fundamental Analysis | Leave a Comment
Having taken a peek at 1.60 on Tuesday and the charts showing a move to at least 1.61 and beyond, the euro has reversed faster than Gordon Brown’s reputation for economic competence and is currently holding at 1.56, but falling. The reason has been given as weaker than expected economic data from eurozone as well as a sense that the worst may be over in the US - all the financial dirty laundry having now been washed the world can move on, while in Europe the banks have still to come clean about their losses. Credit Suisse has led the way this first quarter reporting losses of 2.5 billion swiss francs. Against this backdrop the ECB has continued with its tough talk on inflation with hints that interest rates would even have to rise. In addition claims by the Germans that Eurozone could live quite happily with an exchange rate of 1.6 should have added impetus to the 1.6 move. This last claim is, of course, a direct contradiction of their stance back in February when they let it be known that anything above 1.60 would not be welcome.
Has the euro really run out of steam? Well, maybe for the time being. Two important indicators which may help us make some sense of what is actually going on are the price of oil and the dollar index. The euro has been tracking the oil price relentlessly for some time, which is obvious given current dollar weakness, and whilst oil looked set to reach $120 a barrel and beyond, I actually believe we may see a major reversal in the price very soon. Secondly, the dollar index is showing signs of bottoming out on the daily chart and consolidation on the weekly. Any break above 73 will be significant.
A further signal that the euro would not continue upwards this week could be found in the chart of the dollar swiss where the dollar did not fall as much as it should have done (remember euro dollar and dollar swiss correlate negatively - as one goes up the other goes down). Rumours too that the FED will not cut interest rates next week has also contributed to this week’s move.
Finally, as I have said on many previous occasions the medium and long term fate of the euro is linked directly to the internal politics of the eurozone despite what the charts and ECB may say.
Given the lack of any significant economic data today look for any fall to 1.55 and watch the close on the euro dollar weekly chart. Good luck.
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Posted on April 7, 2008
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With non farm payroll out of the way this week the focus is back on interest rates (Japan, UK and eurozone) and the “r” word. Back in the dark days of the 70s (possibly the uncoolest decade ever with dodgy clothes and even dodgier haircuts!) it was also a time of sharply rising prices, inflation and precious metal prices soaring to new highs. Jimmy Carter was President and when the late Alfred Kahn his chief economic advisor used the “r” word in one of his discussions with the press he was sharply reprimanded. In one of his subsequent meetings Mr Kahn acknowledged the error of his ways by promising never to use the word recession. Instead he chose to use the word “banana” and concluded his comments to the press with a rendition of “Yes, we have no bananas, we have no bananas today!” The reason for this story? Other than its amusement value the same could be said of today - ignore the “r” word and it will go away and perhaps never happen.
In the forex market it is euro which looks ready to deliver a decisive verdict one way or another as the daily chart on the eur/usd looks to form a classic pennant (excellent for a straddle trade). Meanwhile Sentix investor confidence data out of eurozone today showed a significant increase. This indicator measures confidence towards the eurozone economy. A rising trend usually has a positive trend on the nation’s currency because it suggests that funds are more likely to invest in European securities, which tends to strengthen the economy. Weekly and monthly charts also seem to point to a further rise in the euro.
Earlier this year (28th Feb to be exact) Hans Werner Sinn head of the German IFO economic research think tank confidently stated that the euro would only become a problem for the German economy if it rose above 1.60. Given that this rate is fast approaching we shall see what happens later this week. Perhaps someone should remind Mr Sinn that what is appropriate for the German economy may not be so clever for the rest of the eurozone!
Dollar Back From The Dead
Posted on March 24, 2008
Filed Under US Dollar | 1 Comment
It is said that “a week is a long time in politics” but last week’s turmoil across all markets felt more like a lifetime! While secretive traders in Singapore were busy trying to take down a leading UK bank the commodity bubble temporarily burst as gold, silver, oil and soft commodities all fell sharply. Silver, in particular, was down over 25% and even oil dropped back below $100 a barrel. The reason? Probably a combination of profit taking and dollar strength kicking in, although with so many traders and investors having recently rushed into this sector of the market we can expect further falls.
Despite thin holiday markets adding extra volatility the charts for the majors are beginning to show evidence of dollar strength returning. In addition this morning’s better than expected existing home sale figures have added to dollar optimism. Existing home sale figures measure the annualized number of existing residential buildings sold during the previous month. A rising trend has a positive effect on the nation’s currency because large purchases tend to be made by consumers who are optimistic and confident in their financial position. The sale of a home also triggers commissions for real estate agents, and often home owners will purchase goods such as appliances and furniture shortly after purchasing a home. Traders watch this report closely as it’s the month’s first demand-side housing indicator to be released.
The most interesting chart of the majors to consider is the dollar yen where we see the dollar has managed to fall to levels not seen in over 10 years. Given the Japanese deep worry about a strong yen and Japanese banks due to report this month the next few days will be critical for this pair. A deep downthrust last week could be the start of a slow climb back for the dollar and an opportunity for some decent long trades (at last!!).
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