Trading The Euro? Here’s What I’m Seeing

  • November 12, 2004
  • Dave Floyd

Unlike their Asian counterparts, the ECB is only willing
to use words as a way to combat the rapid rise of the EUR. 
While the rhetoric has stymied the run up in recent days, the EUR is
still on the verge of clearing 1.3000.  Comments
from various ECB officials indicate a real concern regarding the stability of
growth going forward given that oil prices remain high, and the pace of the EUR
rise might negatively effect exports.  However,
without a rate cut or direct intervention, FX traders will likely test the
resolve of the ECB in the days to come and breach the 1.3000 level. 
While these make for interesting times when observing from afar or the
sidelines, we still see it as a tough trade to initiate given the volatile
nature of the pair.  The crosses
continue to provide us with reasonable moves with less the gut wrenching
volatility.

Technical Notes:

EUR/USD:  weekly
studies show mixed signals.  Stochastics
are overbought and crossing lower, MACD remains bullish, but momentum studies
show deterioration.  Daily chart
showing RSI divergences. Intra-day models suggest choppy trading with
1.2900-1.2947 likely to contain prices today.

GBP/USD:  failure
at key resistance earlier this week has ushered in some erratic price action. 
Short-term models suggest selling rallies into the 1.8470 level with
1.8400 and 1.8370 logical downside targets. 

USD/JPY:  despite
solid move higher on Tuesday through the key 106.10 level. 
The Yen rallied hard last night potentially offering a chance to
re-establish longs above 106.10.  Look
for 105.60, 106 and 106.27 to be key intra-day levels.

USD/CHF:  underlying
technicals still suggest that a bounce is at hand. 
Naturally the timing is the elusive piece at this point. 
As mentioned on Wednesday, a dollar catalyst is needed or perhaps some
news event that takes down the current level unease regarding world events,
items that always benefit the Swiss Franc. 
Look for some sideways action intra-day with minor levels seen at 1.1780
and 1.1730.  Daily and weekly models
showing signs of gradual improvement, but a break above 1.1890 (bear trend
channel) will need to be breached for meaningful upside to be attained.

Open Positions:

EUR/AUD:  this
short got shot in the arm yesterday as the 200-day ema was breached. 
A test of the October lows (1.6774) seems possible as daily and weekly
indicators still are solidly bearish. 

AUD/NZD:  a
move back to the 200-day ema will prove key. 
If it does not hold we will need to consider closing out the trade for a
modest profit.  However, given the
macro story developing, it seems likely that there is more upside in this trades
in the days to come.  We will
monitor closely and make determinations as needed.