12-13-2009: March Euro Currency: Sentiment Shifts to U.S. Dollar from the Euro
The options gave us a rather wild ride, delaying release of this article. What most traders seem to sense is that the Euro Currency moves in long trends. Having shown recent weakness, the collective minds of traders seems to be asking if the major trend has changed to down, or is this just a glitch? The strength or recovery of the U.S. Dollar is of course a prime factor in the relationship for the futures contract denominated in Dollars. The conclusion of most in comparing the two economies seems to have had a major shift of sentiment in recent weeks favoring the Dollar over the Euro. Given that, we detect a surprising number of our technical indicators have also shifted their prediction to the down side.
March Euro Currency:
March Euro Currency:
Commitment of Traders data suggests speculators have been piling on U.S. Dollar long positions and driving down the Euro Currency contract. Israel's foreign currency reserves stand at $61.5 billion at the end of November, and Israel for one has stopped buying U.S. Dollars. U.S. money manager Pimco predicts the Dollar will weaken helping exports. Germany's trade balance surplus expandined to $10.7 billion Euro in October despite weaker export growth. Foreign trade there will add just 4.1% to overall economic growth this year, the lowest in 6 years. The U.K.'s trade deficit is expected to narrow in data for October to be reported. A decline in imports there is the catalyst. The jobless rate in England is the highest in 13 years. A good U.S. retail sales reading accompanied by continued Euro weakness would suggest a major change in trend to down for the Euro. Strong retail sales support the Dollar against the Euro. Europe's GDP is up modestly but still down 4.3% from a year ago. Real GDP there is predicted to be down 4.2% in 2009 and flat in 2010, according to the International Monetary Fund. Government spending in Germany, France, and Italy are 45%, 53%, and 50% of their nations incomes. That is high relative to most democracies because of the extensive social programs they offer. Debt amounts to 63%, 87%, and 104% of GDP, respectively, for the three countries. Tax revenues are 63%, 67%, and 104% of GDP, respectively. Unemployment overall is 9.8% in Europe. The European Central Bank's latest rate change is reduced on May 7th from 1.25% to 1.00%. This is the second-highest rate out there, after Australia. However, European Central Bank governors are hinting at a rate increase as early as their next meeting. The EU pleged 2.4 Billion Euros as a climate gesture at the Copenhagen Climate Conference. The European Parliament marked the tenth anniversary of the Euro. Slovakia has just entered the Euro zone. Poland has steadfastly refused to join the European Union. Euro area inflation is set to rise according to the latest statistics. The U.S. Federal Reserve is anticipated to be considering hiking rates soon. The Euro's biggest fundamental driver is the health of the U.S. Dollar. As the primary alternative to the U.S. currency there has been a frenzied demand for the Euro as the need for return and stability sent capital into the large market. However, when the tides turn and the expectations for the returnin the U.S. improves and the irrational fear that the benchmark currency will not just lose prominence but completely fall off; speculative capital will reverse course. This is accompanied by a fundamental weakening of the Euro Zone itself. Economic and interest rate outlooks are cooling. There is also instability that member default and/or possible withdrawal from the union may bring. Panic was recently sparked byi Dubai World's default/debt restructuring. Greece's sovereign credit rating was downgraded and the outlook foir Spain is "negative." This speaks to troubles outside Germany and France and the lack of flexibility that policy makers have in stabilizing individual economies and markets. Finance ministers cannot take on more debt than the Union allows, devalue their currency, or adjust interst rates. If member nations cannot recover naturally and must seek bailouts, they may have to consider withdrawal from the collective. Either outcome undermines the stability of the Euro. Also, not as anticipated, the Euro Zone is not the first to recover from global recession. (This is more apt to be China.) Euro Zone growth is expected to trail both the U.S. and Japan. While the Fed may return to a hawkish policy by the middle of 2010, this does not appear to be in the cards for the European Central Bank.
170.0I T 12/11
I CME - Mar-10 Euro Currency (125K eu c/eu) Cm.=0.01 Lim.= 0.1
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165.0I_________________________________________________________________________
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160.0I_________________________________________________________________________
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I X
I X XO
I XO XO
155.0I__________X_XOX_XO_______________________________________________________
I XOXOXOXO
I XOXOXOXO
I XO O O O
I X O
150.0I__________X______O__________________X____________________________________
I X O XO
I X O XO
I X OX XO
I X X X OXO XO
145.0I______XOXOX______OXO______X_________X____________________________________
I XOXOX OXO X X
I XOXO OXO X X
I XO OXO X X X X
I X OXO X XO XOX
140.0I______X__________OXO______X_XO____XOX____________________________________
I X O O XO O XOX
I X O X O XO
I X O X O X
I X X O X O X X
135.0I____XOX____________O______X__O__X_X______________________________________
I XOX O X O X X
I X XO O X O X X
I XOX O X OX XOX
I XOX O OXOXOX
130.0IX_XOX______________OX_X_X____OXOXO_______________________________________
IXOXO OXOX XO O OX
IXOX OXOX XO OX
IXOX OXO XO OX
IXO OX OX O
125.0IX__________________O___O_________________________________________________
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120.0I_________________________________________________________________________
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115.0I_________________________________________________________________________
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110.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
1 1 1111111111 1
26113892122334566799001111222211335672
02201111002223212212230122112323130000
63286604376460136979915148199180604818
The above point-and-figure chart is giving a conventional buy signal.
We are headed toward a cyclical low and a seasonal down period.
Our best-performing internal program is "Zondr." It is giving a sell signal.
Results of "Zondr" for Euro Currency (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system has just triggered a buy signal. (Note, disregard the year date on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $1,250. Initial margin on a single contract is $6,345. Use of options is advised.
Scake trade sellers are a factor in this price range entering the market for the long term.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Red is small speculators. Green is large speculators. Blue is commercials. Large speculators with the best track record are getting increasingly-short.
The average volatility shown below suggests that a major change in direction to down has begun from a volatility low point.
Our option trade recommendation is to Sell the Euro Currency March 147 Call @ 0.0247 or better.
Due to a glitch in our data provider's system, he is unable to bring us the usual format for a chart of this option, although he does have the historical raw data for it in his files. We have a request in for him to fix it. Meanwhile, we present the raw data in lieu of a chart in the hope that maybe the reader has a way to transform it into a charting program of his own if he is that interested to pursue it.
10/13/2009,0.05,0.05,0.05,0.05,4,18
10/14/2009,0.0568,0.0568,0.0568,0.0568,0,18
10/15/2009,0.0574,0.0574,0.0574,0.0574,0,18
10/16/2009,0.0553,0.0553,0.0553,0.0553,0,18
10/19/2009,0.0579,0.0579,0.0579,0.0579,0,18
10/20/2009,0.0566,0.0566,0.0566,0.0566,0,18
10/21/2009,0.0615,0.0615,0.0615,0.0615,0,18
10/22/2009,0.061,0.061,0.061,0.061,0,18
10/23/2009,0.0588,0.0588,0.0588,0.0588,0,18
10/26/2009,0.0498,0.0498,0.0498,0.0498,0,18
10/27/2009,0.0479,0.0479,0.0479,0.0479,0,18
10/28/2009,0.044,0.044,0.044,0.044,0,18
10/29/2009,0.0506,0.0506,0.0506,0.0506,0,18
10/30/2009,0.0445,0.0445,0.0445,0.0445,0,18
11/02/2009,0.0465,0.0465,0.0465,0.0465,0,18
11/03/2009,0.0464,0.0464,0.0464,0.0464,0,18
11/04/2009,0.0554,0.0554,0.0554,0.0554,1,18
11/05/2009,0.0516,0.0516,0.0516,0.0516,0,18
11/06/2009,0.0484,0.0484,0.0484,0.0484,0,18
11/09/2009,0.0579,0.0579,0.0579,0.0579,0,18
11/10/2009,0.0569,0.0569,0.0569,0.0569,0,18
11/11/2009,0.0553,0.0553,0.0553,0.0553,0,18
11/12/2009,0.0502,0.0502,0.0502,0.0502,0,18
11/13/2009,0.0508,0.0508,0.0508,0.0508,0,18
11/16/2009,0.0554,0.0554,0.0554,0.0554,0,18
11/17/2009,0.0473,0.0473,0.0473,0.0473,0,18
11/18/2009,0.0526,0.0526,0.0526,0.0526,0,18
11/19/2009,0.0527,0.0527,0.0527,0.0527,0,18
11/20/2009,0.0486,0.0486,0.0486,0.0486,0,18
11/23/2009,0.0548,0.0548,0.0548,0.0548,0,18
11/24/2009,0.0542,0.0542,0.0542,0.0542,0,18
11/25/2009,0.0657,0.0657,0.0657,0.0657,0,18
11/27/2009,0.0552,0.0552,0.0552,0.0552,0,18
11/30/2009,0.0564,0.0564,0.0564,0.0564,0,18
12/01/2009,0.0621,0.0621,0.0621,0.0621,0,18
12/02/2009,0.0573,0.0573,0.0573,0.0573,3,21
12/03/2009,0.0603,0.0603,0.0603,0.0603,0,21
12/04/2009,0.0426,0.0426,0.0426,0.0426,0,21
12/07/2009,0.0413,0.0413,0.0413,0.0413,1,21
12/08/2009,0.034,0.034,0.034,0.034,1,22
12/09/2009,0.0357,0.0357,0.0357,0.0357,0,22
12/10/2009,0.0344,0.0344,0.0344,0.0344,22,43
12/11/2009,0.0274,0.0274,0.0274,0.0274,15
What the Mar. - Jun. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up. The best time to enter or leave the above spread is when it is at 0.00 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at 0.50 or wider buying the far as prices are rising and then sellling the near.
Here's an intraday chart for the previous day ( 12/11 ).
Risk Versus Opportunity Report
________________________________
ECH0 March Euro Currency
High Price: 149.1
Current Price: 146.1
Low Price: 140.1
Risk: -0.041
Opportunity: -0.083
(O/R) Ratio = 2.000
Level Table:
| Factors | Weighted Points |
|---|---|
| Parabolic Chart | - 1 |
| Nirvana Chart | - 1 |
| News | - 1 |
| Point & Figure | + 1 |
| Cyclicals | - 1 |
| Seasonals | - 1 |
| Internal System 1 | - 1 |
| Internal System 2 | 0 |
| Third System | + 1 |
| Commitment of Traders | - 1 |
| Historic Range | - 1 |
| Range/Volatility | - 1 |
| Level Table | - 1 |
| Other Factors | - 1 |
| Total | - 9 |
Place 4 March Euro Currency on a Sell Watch with stoploss @ +2.15 above the get-in point (when the price decimal is placed as "146.14".)________________________________________________________________________________________________________C.T.
