Magnetic Monkey Numbers, Gustav, and The Dollar
The Labor Day Gustav Hurricane strike turned out to be a financial non event. Traders are collectively breathing a sigh of relief by aggressively selling off disaster hedges like oil and gold. In fact, I witnessed natural gas and oil plummeting before Gustav even hit the oil/gas region as large energy traders, with superior information flow, began to dump their holdings and/or reverse short.
The exact same thing happened in the wake of Hurricane Rita, most of the smaller energy traders and the media were screaming go long, long, long prior to landfall. However, the market sold off, showing the superior data of the large players in the energy game. The markets can be great predictors of future events.
The selling of oil combined with the hawkish sentiment revealed in the Fed minutes and economic malaise extending into the Euro Zone have combined to add fuel to the strong dollar. As you can see from the daily chart, a substantial downtrend has been in effect since July 15th 2008. Technically, this downtrend began after a classic double top on the daily chart, adding to the bearish technical picture. However, many traders are aware of the “2 Zero Phenomena” in Forex trading. What this refers to is the markets tendency to find support or resistance in the range of prices ending in 2 zeros. I call the 2 zero phenomenon “Magnetic Monkey Numbers” for their proven tendencies to attract and repel price in a crazy monkey like manner.
For instance, as you can see on the chart, 1.6000 held the EUR/USD from advancing further. 1.5500 acted as support/resistance multiple times as the double top was being built, then after multiple tests, 1.5500 snapped on the downside, revealing the double top formation. Price is at 1.4582 as this is being written, however the next “Magnetic Monkey Number” is very close at 1.4500. 1.4500 area acted as support/resistance in true MMN fashion in late 2007, early 2008. We will soon see if history repeats around the number once again.
Remember, the Magnetic Monkey Numbers with 2 Zeros refer to a range around the figure and isn’t exact but you can clearly see the influence on the chart.
Best wishes!!
David Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.