This is a Critical Week for Euro Futures

This week may prove to be the most important week of the year for the Euro currency futures. The European Central Bank is meeting on Thursday, July 3rd and the Non Farm Payrolls number will also be released on Thursday, due to the Fourth of July U.S. holiday on Friday.

The consensus of almost all economists is that the European Central Bank will raise rates at least 1/4 of a percent. What makes this meeting so important is, Jean-Claude Trinchet, President of the Central Bank, is being forced to take sides in the rate hike decision for the first time due to a division in the 21 member council.

The President is said to be backing the pro-increase group. This has the potential to set off a series of rate increases, which will help some European economies while hurting others. In comments made to Bloomberg, Morgan Stanley’s Chief European Economist Eric Chaney said, “The region faces its biggest test since 1992.”

Regardless of the true cross border economic effects of the pending rate hike or series of same, rate increases are bullish for the currency. In addition to this significant meeting and potential rate increases in the Euro Zone, the Non Farm Payrolls are being released on the same day in the United States.

As you know, NFP, in and of itself, can rock the currency markets. NFP is expected to be lower on the release which is bearish for the US Dollar, and by default bullish for the Euro since the USD is what the Euro currency futures are calculated upon.

The Euro FX E-mini contract traded on the CME is a good tool to use to trade the events in this critical week for the currency. The ticker symbol is E7 and it trades in units of 62500 Euros with a minimum tick size of $6.25. It trades 2 months in the March quarterly cycle, March, June, September, December.

As you can see from the chart, the Euro future has been consolidating since June and is now near the June highs, but well off the all time highs of April 22, 2008 of 1.6020. Price is nicely above the 20 period SMA on the daily chart and is bumping into and starting to ride the upper standard set Bollinger Band upward. It looks like an assault on the all time high may have started

Technically, the Euro appears bullish. The technical picture, combined with the fundamental potential for bullish economy shocking events this week suggest a very bullish near term for the CME Euro E-mini Future. It’s important to keep in mind that anything can happen in these highly volatile markets. Trade only using risk capital and position size accordingly!

David Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.