The Euro currency futures have fallen by more than a percent over the last few trading sessions to test solid support around 136.50. This support level is also being actively defended by the commercial traders. Collectively, they’ve purchased more than 35,000 contracts in the last week. You can see the jump in their position on this commitment of traders chart. This is a substantial number considering open interest in the Euro FX is approximately 250,000 contracts. This is also the largest weekly commercial buying we’ve seen since last November when the Euro declined by nearly 4% in one week.
HOW TO PLAY THE TRADE
Given the current chart formation, we see Thursday’s low as most likely completing the swing trade lower. This morning’s early rally has stopped dead at Friday’s high. That leaves us with two ways to play the long side of this trade. The odds favor the market taking out Friday’s high of 1.3726. That being said, any entry point today could be defended with a protective stop as tight as Friday’s low of 1.3684. However, a more conservative approach would allow the market to breach Thursday’s high of 1.3731 before entering the long side of the market and placing the protective stop at what we expect to be the swing low of this move, 1.3645.
