Hello Everyone:
I havenât looked at the Euro since Friday except to note the closing price which was at about 12184. As expected, there was very little upside action before the close and not enough of a risk/ward in either direction to warrant a trade.
This is my two cents worth on where we stand now. Please jump all over me if you have a differing view. Always glad to hear other opinions.
The COT numbers are interesting and although there is no large scale exit of long term dollar positions there is a definite change. As of March 14, the open interest has dropped with the Funds decreasing their positions and the small specs went long. Reason enough to go short. All of the large traders, the Funds and the Commercials went net short. Not in a large way but, short.
The dollar chart on a WEEKLY basis shows the next support level at the 86.50 level or thereabouts which should be reached by the middle of May. I think there is now some real weakness showing in the dollar in the intermediate term and, all trades should be oriented to the long side vs. the dollar. The interest rate differential that has held it up so long is about to evaporate. 5% may be the top for the FED and if that turns out to be the case, we are in for a slide in the dollar that is likely to very sharp.
I ran across and article by Victoria Marklew, an analyst with Northern Trust, a European Bank. It reads as follows:
Across continental Europe, policy interest rates are headed upward, and maybe a little faster than the markets currently expect. Today's 25bp rate hikes from the Norwegian and the Swiss central banks were widely anticipated, not because of current levels of inflation but because of expectations that stronger domestic economies will boost price pressures further down the road. As in the Euro-zone and in Sweden, the central banks are taking steps to return to "normal" interest rate levels before things get out of hand.
Which brings us to the ECB. Euro-zone inflation eased a tad in February, to 2.3%, Since the 25bp rate hike on March 2, we've seen a steady drum beat of statements from Governing Council members that, in addition to high oil prices, money and credit growth pose a risk to price stability.
On Tuesday, Governor Trichet made his usual references to "abundant liquidity" and the bank's "accommodating" monetary policy. The markets have been assuming that the next upward move will come on June 8, but there is a possibility of a move on May 4. If Trichet starts using the word "vigilant" in his speeches next month, then the possibility will become a probability.
It seems that regardless of whether rates are raised on May 4 or not, rates are going up and this will mean a rise in the Euro. It is not going bode well for US capital inflows either.
Steve summoned up the hurtles facing the dollar in a concise sentence in his most recent post.
My weekly goal in the Euro is the same as I have posted before: 1.2509 â 12653. I see no reason to change this target area and now believe we may reach to the 12653 level before we are done here.
However in the near term we are in for a correction. The maximum upside risk to a newly initiated short position is to the 12216 level. I canât see us getting much above this. (Watch it go to 12325 hehe)
If that is the case, my strategy on Sunday is to short the Euro at or near the closing levels seen in Fridayâs session and place a stop just above 12216. I may have to sell it several times before my stop holds but, it is my view that we are headed lower here and I think it will be well worth the effort.
We will have a clearer downside target when the market turns lower, however it may retrace somewhere between the 38% and 50% level of the run up from the March 10th low at 1.1856.
Therefore, we can wait for this correction to be over to take a long position for the next move higher or, short on Sunday night at or near current levels. That will be what I will be considering and will post my trades as I enter.
Please let me know if you agree or disagree.
Best regards everyone.
(I promise my posts will be shorter in the future)
