Ralph Shell @ 2:47 PM, Tuesday June 08 2010
News of the euro's relentless slide over the last six months, has reached main street. Even my good friend Vinnie the full time bartender and part time book maker is asking questions, trying to figure out how he can take some of the action. The bear party in the euro has become a big time affair. Yesterday the open interest in the euro futures market increased by 13,340 contracts, following the previous two days of an day's increase of 13,660 total. The total futures OI is up to 290K. In addition there is a robust trade in the euro options. They increased by 5530 contracts to a total of 259,050. This does not include any positions in the cash forex markets.
Below is weekly chart of the euro. It is hard to use a weekly chart to trade but they do give you excellent perspective about a market. The downtrend, which commenced in late November, has now been in place over six months, from a high of 1.5143 down to a low 1.1875, or a total of over 3300 pips. According to the COT report on 12 08 2009, spec were long 18,774 contracts then, and on the last COT report dated 06 01 2010 held net short positions in the euro of 83,684 contracts.
There are a couple interesting signals on the weekly chart. On the week of 12 04 2009, we were toying with a season high, and we got a MACD crossover, indicating it was time to sell. During the recent weeks the RSI has shown we are trading in a seriously over sold area. Our current trading level is 1.1937, and puts the RSI at 18.9 well below the threshold of 30. The numerous new shorts in the euro/dollar makes the pair vulnerable to a short squeeze. We will be watching the action and the news for the balance of this week, looking for a spot to buy the euro
There has been lots of attention focused upon the BP Gulf of Mexico oil spill. The US Congress, always anxious for new fund sources of money, are proposing a tax on oil companies drilling in the gulf. The administration is also proposing a 6 month halt on any further gulf drilling. Hastily drawn legislation usually has flaws and many unforeseen consequences. If something like this does pass, it would increase the US's dependency on foreign sources, and would be a factor that would weaken the USD.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.