Mark This Date On Your Calendar
Bo Harvey, Dave’s colleague,
is writing today’s article.
This
week saw the Euro finally correct after its very powerful advance
since November 6, finally breaking the trendline that had held so well off that
11/6/03 low. The dollar finally (and rather quickly) hit the initial long-term
support zone of 85.00, noted after it broke through key support at 91.00 in
November. I suspect we’ll get at least a multi-day if not a multi-week bounce
in the greenback before renewed selling pressure appears.
Almost every speculating fund
is short the dollar, and bullish percentage on the USD got as low as 8% last
week. These positions and the bearish sentiment that goes along with it
(remember, most sentiment surveys are simply reflections of already-allocated
capital) may take some time to “work off†as they say. Gold stocks put in an
intermediate term top and got hit on big volume this week and the CRB Index and
several commodity/energy stocks look ready to correct, all of which further
reinforce the dollar-bounce scenario.
But enough, let’s talk levels.
1.2550-1.2600 is a key support zone to watch in the Euro, which includes the 20
day EMA and the low from 1/8/04, which may provide a slight bounce. Please be
advised this is being written Thursday night, so by Friday open the bounce off
or breakdown through this level may have already occurred. As of this writing
the Euro is finding some support in this zone. If the Euro gets a bounce, keep
an eye on the hourly moving average as well as 1.2700. Under 1.2550, 1.2450 is
the 38% retracement of the move up that began Nov. 6 and will be my initial
target.
I have been also been watching
the 1.2500-1.2850 zone on a much longer-term scale in the USD/CAD. This zone is
approximately where very long-term trendline support zone in the USD/CAD lies,
going back all the way to 1975! Although the CAD appears to have found some
resistance (i.e., dollar support) at this level this week, I am more interested
in stalking a potential breakout below this zone for a much longer-term position
trade, with a target of 1.15. This may take weeks or months to pan out, though,
so it will be in the put-the trade-on-and-fhuggedaboudit department.
Finally, a date all FX traders
should have marked on their calendars is Feb. 6th, which is the next
G-7 meeting. The last one provided some decent fireworks, let’s hope the
ever-staid central bankers can toss us a volatility bone once again.
Have a great trading day, and
feel free to email with questions/comments.
Bo Harvey