Diary of a Financier

Up Next for the EURUSD Tango

In Economics on Tue 1 Feb 2011 at 10:43
  • EURUSD close to a near-term bull catapult to $1.50 if it can capture $1.40 soon.
  • Long-term, remember that DXY has started a secular bull.

Economists and journalists have watched the EURUSD tango with bewilderment over the past three years.  The swings have been volatile, and I’ve seen quite a few FX traders perish at their wit’s end.  The Money Game captures that “bewilderment” this morning:

Amazingly, the euro is the standout performer of the day, defying everyone’s expectations.
I’m no FX trader, but I think it’s funny that so many macro guys turn to fundamentals in FX analysis.  While Goldman Sachs advised clients toward capturing the downside of every FX swing in 2010, more technical analysts like Citi FX have had a better go at it through these tumultuous times.  That’s no anomaly, FX has always been a technician’s playground.
So I sit here today, a few months away from a romantic week in Italy, and I’m thinking that I should maybe buy some Euros.  In talking to a few analysts here, then taking a consensus of some colleagues: the expectation is for a Euro rally back to US$1.50.  But, I’m fundamentally opposed to analysts’ opinions and consensus.

EURUSD weekly- broad range downtrend since August 2008.

In all likelihood, we’ll see EURUSD rally up to its bearish trendline on the weekly chart above.  Since momentum is at its back, I can see it breaking into a new, bull trend in a new range between US$1.40-1.50.

EURUSD daily- first resistance just below $1.38 with MACD having busted through a support line back in November 2010.

The daily chart has its first test looming at $1.38.  The caveat would be the MACD’s recent violation of its support line (circled above).  That’s not a tradeable event as confirmation of a trend reversal is still pending–particularly given the more powerful, bullish trend in the weekly chart.
My verdict awaits the crossing of $1.38, then the capture of $1.40, which would coordinate long-term with short-term in bullish unison.  Take a gander at the extended daily chart to see the buildup to this first resistance:

EURUSD daily extended- substantiating the $1.38 1st resistance.

All and all, I’m noticing capital’s lack of willingness to seek the USD & US Treasuries throughout the contagion of social unrest in the Ivory Coast and Northern Africa (Tunisia & Egypt).  Perhaps I could read more into the growing pricing gap between Brent Crude and American-based NYMEX light-sweet crude oil too.  I withhold conviction on the near-term EURUSD fate, but with the aforementioned capture of US$1.40, I’d be buying the Euro Trust ETF (FXE) for my vacation this spring.
As I noted in my 2011 Outlook:
…the monthly chart of the US Dollar Index shows that a secular USD bull began back in March 2008… [but] the shorter term daily chart shows pending resistance just under 81.50. A failure at that double top would confirm the developing bearish trend in the daily trend, and doom the weekly chart to produce an ugly 2011. Such a failed double-top would lead me to short the USD.
That’s exactly what has developed.
I’ll leave you with a side-by-side comparison of the EURUSD & DXY monthly charts, something to keep in mind over the coming years:

EURUSD v DXY monthly- the long term waves suggests that the EUR has started a secular bear trend, while the USD is actually beginning a bull.

…I know it’s hard to believe.
 
–Romeo
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  1. EURUSD hit 1.38 on 2/3, then dove to 1.35, which is where it sits as of this morning.
    Was I right in my call? Yes, sort of. I had 1.38 as a 1st resistance, but I realize that I had a lot of conditional statements in my analysis–too many for even my appetite. So, it’s hardly a call to brag about.
    In the end, I would’ve gone long EURUSD at 1.40, and that didn’t happen.

  2. […] it’s willing to give any more ground, so in neat coordination with my EURUSD bullish-catapult thesis, a strengthening Euro might drive DXY just that smidge lower.  Upon finding support (my target is […]

  3. […] it’s willing to give any more ground, so in neat coordination with my EURUSD bullish-catapult thesis, a strengthening Euro might drive DXY just that smidge lower.  Upon finding support (my target is […]

  4. […] it’s willing to give any more ground, so in neat coordination with my EURUSD bullish-catapult thesis, a strengthening Euro might drive DXY just that smidge lower. Upon finding support (my target is […]

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