Euro In Position…
Same Story – Different Day
The FX markets continue to waffle in a pretty
narrow trading range. Traders remain convinced that the Fed will aggressively
raise rates, although Fed rhetoric dictates otherwise. Despite the prospect of
higher rates, the Dollar remains challenged to capture any higher ground.Â
Presently (Thursday evening) it is still wrestling with 89.62 and 89.78, key
levels on a long and short-term model. It seems as though higher inflation
won’t help the USD unless it drives higher expectations of faster action from
the FED, and for now it appears the Fed is doing everything possible to avoid
the mistakes they made in 1994.
With that in mind, the
EUR, purely from a technical perspective, is in an interesting
position — it is sitting right around the 200-day EMA (1.1977) and as mentioned
yesterday a long term trend line in the 1.19 area. If you see some short-term
time frames offering entries off the 1.1977 that have a favorable
momentum/stochastic patter, they seem like reasonable short-term trades as the
markets continue to determine which was they will ultimately go. Â
One trade that is still not firing on all
cylinders is the carry trade. Carry trades, for those unfamiliar, buy the
currency of the country that has a positive interest rate differential and sells
the one with the lesser rate. If the first currency appreciates versus the
second, not only is there a capital gain to be had, but also an income stream
from the interest earned on “carrying” the position. The
NZD, AUD and
GBP were lay-up carry trades in 2003, but
with the prospect of higher rates in the US, this trade has lost much of its
appeal. The exception is the Pound, which has held in remarkably well in recent
weeks. Despite the Fed indicating that rates are not likely to rise as fast as
the market has priced in, the carry trade is still not a one way bet. Perhaps
it is the situation in China, while a hard landing is not likely, the growth
will undoubtedly taper off, and as a result will have a negative impact on
exports out of Australia and New Zealand.
I remain short USD/JPY
at present, but see little else with a good risk reward ratio. A break through
109.25-109.00 should allow for a move towards 107.80 and potentially 105-106. A
worse than expected Current Account Deficit number will certainly weigh
further on the Dollar and assist in pushing our short USD/JPY position lower.Â
(it came in worse at 5:30 AM PST)
June 30th and the Fed meeting loom large. There
is simply too many opinions and not enough risk takers to break this market.Â
Make sure you fine tune your golf game during this period.
As always, feel free to send me your comments and
questions.