The Euro currency has been range bound over the last year, stuck between $1.33 and $1.40.
Looking Back
Late this spring, the market tested $1.40 again and has been in a gradual slide, since. The summer’s slide has generated an interesting development. Typically, we would have viewed spring’s $1.40 failure as highly negative, a double top at best, or an obvious sign that Euro as a Union can’t get out of its own way when it comes to dealing with insolvencies or the protection of its own members. However, once the market backed off to the $1.37 level commercial traders came in and began buying.
Big Players
Consider that the commercial traders were indeed net short about 15,000 contracts when the Euro made its last attempt at $1.40 in May. Currently, they’re net position is long more than 155,000 contracts. They’ve been net buyers in eleven out of the last twelve weeks and have pushed their net long position to its largest level since August of 2012. Their actions are beginning to make this year’s sideways range look like a consolidation period before pushing higher. Consider that the Euro was trading near $1.235 the last time commercial traders were this bullish and you’ll begin to sense the eagerness of their purchases.
Buy Signal
The recent sell off in the Euro has created a classic COT buy signal. Speculators and general market action have created an oversold situation in a market fully supported by commercial trader buying.
Friday’s reversal was strong enough to trigger the buy signal on the market’s recovery from its short-term oversold condition. Finally, the swing low that was created at $1.3369 provides us with a point to place our protective sell stop should the market make another run lower. We’ve created an annotated chart with the details of the full setup. We’ll continue to monitor this situation once the market climbs back towards its resistance levels.
