The Euro currency has been in freefall all winter long. The last meaningful highs were made nearly a year ago around $1.40. This is nearly a 25% decline over the last year and really quite remarkable. Rarely does a major world currency move so far, so quickly. This leaves current charts devoid of any meaningful frames of reference and leads to our first chart which shows 15 years of Euro currency price data along with the net commercial trader position over that same period.
There are three quick points to make about the long-term Euro currency chart below.
1) $1.20 has been the primary value area for the last 15 years.
2) The larger technical pattern leads to a bottom just above even money to the US Dollar.
3) Growing commercial trader interest is contributing to the record net-long position.
(insert long-term Euro chart)
Moving to our standard COTSignals screen adds two more panes to the chart; short-term market momentum and commercial-trader momentum. We track both the commercial traders’ position as well as the momentum of the position in order to determine how badly they want to take action at a given price level. Here we can see that three straight weeks of net purchases totaling more than 20,000 contracts has been enough to push commercial trader momentum back into positive territory. Positive commercial momentum has returned the short-term market momentum indicator from oversold levels creating an official COT Buy Signal.
(insert Euro cot chart)
This brings us to the final screen including today’s action in the Euro currency. Clearly, this downtrend will leave many levels of overhead resistance to deal with on any type of rally. Fortunately, the substantial increase in volatility means there’s lots of opportunity to be had in the pockets in between resistance levels. I believe that we are currently setting up for one of these pockets that could send the euro high enough to justify nibbling at the long side near these prices.
(insert short-term Euro chart)
March 19th and 20th (Thursday & Friday) were both inside days following last Wednesday’s wild action due to the Fed meeting. The market has moved above Friday’s high indicating some resolution to the previous days’ indecision. Furthermore, a move above Thursday’s high at $1.0931 would push the market above its most recent and steepest trend line. When we combine this technical action with the supportive buying power and inside knowledge of the commercial traders we begin to see why the odds could favor trading for a short-term rally.
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