The euro currency has been in a downward cycle, and I remain bearish as the Eurozone economy looks a bit behind the U.S. in terms of measures to restore growth. On March 5, 2009, the European Central Bank (ECB) cut its key short-term lending rate to a record low of 1.5 percent, but it still remains above the Bank of England’s rate of 0.5 percent and rates of near zero In Japan and the U.S. I believe the ECB will cut rates back further, but at a more subdued pace. The general market view is that while we are experiencing a global recession right now, the U.S. is in a much better position than the EU to pull out of it sooner.
Words and actions from the ECB have failed to boost confidence, and the most recent economic reports out of Europe are somber at best. The French unemployment rate rose to 8.2 percent in the fourth quarter 2008, and is expected to show worse numbers in 2009. German retail sales, which were expected to rise in January, declined 0.6 percent.
The U.S. dollar has benefited from a flight to quality bid, and I think that trend should continue. My long-term outlook is for the euro to touch $1.1655. (June futures are currently trading near $1.27940) I recommend buying the June 2009 euro puts at 122 for about $2,750 (not including commissions), which represents your defined risk on the trade. You can consider a bearish put spread if you’d like a less expensive trade. You could buy the June 123 euro put and the sell June 121 puts against it for a cost of about $750, not including commissions. That’s your defined risk on the trade. Your maximum profit potential would be $1,750 per spread (not including commissions) if the market is trading below $121 by the date of expiration, June 5, 2009.
In the more short-term, I’d look to sell rallies near resistance points. I wouldn’t be surprised to see a corrective bounce, but this market has had trouble breaking past its nine-day moving average and to me looks technically bearish. I would caution that this market has been volatile, so you have to be careful as you trade to ensure proper risk management is in place.
Silver prices pulled back sharply Monday, March 9, 2009, as the May COMEX contract fell 2.9 percent to $12.94 an ounce. I think silver is overbought and is likely to further deflate as we continue to see slowing in the economy. Silver has actually outperformed gold this year, but unlike gold, silver is an industrial metal. I see further slowing in the economy and silver should see a setback, bringing it to $10.50 or even under $10. There’s been a big gold rush as investors bought gold as a safe haven, but I think silver got ahead of itself and is going to be more subject to less supportive fundamentals.
Right now I recommend selling the May $14.50 silver calls. If the market closes below $14.50 at expiration on April 27, you would collect $2,500 per contract, not including your commission costs. Keep in mind that while selling options offers you the ability to collect premium, there is a potential for unlimited risk if the market moves against you. I encourage you to give me a call to discuss the current state of the markets and develop a customized strategy for your particular situation.
John Caruso is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted divisionHe can be reached at 800-445-0567 or via email at firstname.lastname@example.org.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
You can hear market commentary from Lind-Waldock market strategists through our weekly Lind Plus Markets on the Move webinars, as well as online seminars on other topics of interest to traders. These interactive, live webinars are free to attend. Go to www.lind-waldock.com/events to sign up. Lind-Waldock also offers other educational resources to help your learn more about futures trading, including free simulated trading. Visit www.lind-waldock.com.
Futures trading involves substantial risk of loss and is not be suitable for all investors. 2009 MF Global Ltd. All Rights Reserved. Futures Brokers, Commodity Brokers and Online Futures Trading. 141 West Jackson Boulevard, Suite 1400-A, Chicago, IL60604.