The Euro is not normally a market covered in this website but I was asked about it, so thought I would write a little something. That said, the US Dollar still has a strong impact on markets such as Oil, Gold, Eurodollars and other markets we normally look at, so there is some relevance.
THE TECHNICALS
Last week was another quiet one for the Euro, with small ranges and very little changing on the technical front. On the weekly charts, we still see the trend signals pointing to a continuation of the bullish trend (Chart 1).
Chart 1:
On the daily charts (Chart 2), trend indicators are closer to neutral with the choppy range bound market over the last few weeks. It is interesting to note the well formed wedge pattern. This suggests a near term break and increase in volatility in the very near-term (the next 1-2 weeks).
Given the longer-term trend, that break will more than likely be higher. The key level right now remains 1.500. The market has seen some strong selling here, however a break above may well trigger buy stops from all and sundry and help fuel a move higher.
A sustained break above 1.5050 will be seen as significant for the near term direction and suggest that flag has turned into a continuation pattern.
Chart 2:
THE FUNDAMENTALS
Federal Reserve Chairman Bernanke spoke this week, saying the Fed is attentive to the value of the Dollar and “will help ensure that the dollar is strong”. The words triggered a little selling in the Euro, but downside was short lived as buying took the market back towards the 1.5000 levels once more.
Overall the fundamentals remain mixed. Some commentators are talking about the CFTC Commitment of Traders data suggesting a reversal in the US Dollar (Euro lower). However that is just one factor in many when looking at the data.
The table below shows the negatives and positives for each currency and as you can see, it would be easy to be on either side of the fence.
Source: Learning Markets
In all of this, interest rates and sentiment are key. The question is when will rates in the US move? On the balance of things US economic data remains negative and further supports the anticipation that the Fed will maintain a loose monetary policy for the foreseeable future. For traders, this has two implications:
1. Do not expect a big reversal in the Dollar anytime soon – without some seriously surprising US data; and
2. Smaller short-terms trades are favoured as opposed to taking large long-term directional plays.
Key Points:
• TECHNICALS. Signs point to a continuation of the bull market. 1.5000 is the key level.
• FUNDAMENTALS. Data is mixed with no strong clues on near term direction. Short term positions best suited.
