Ralph Shell @ 1:57 PM, Thursday July 15 2010
In a quick five weeks, the severity of the euro problems has abated, and the new winner in the ugly currency and perhaps the most troubled economy is now the US. Back in early June, Greece was on the verge of collapse, and a handful of islands were reported for sale. Greek 10 year notes were trading over 17% when a consortium of European Central Bankers, German, France, Italian and a few others started buying the Greek paper, with a result the rates came down sharply to under 8%. The ECB bond buying continued in Spain, Portugal and Italy, and now the debt problem has been deferred.
Across the Atlantic the economic news continues pessimistic. Granted the new unemployment claims this morning showed to a dip to the lowest level since August 2008, but the number still shows sizable job losses. Even the Fed acknowledged that growth is less than previously anticipated and unemployment is likely to remain high. Confronted with falling poll numbers, President Obama yesterday held meetings with both Warren Buffet, and former President Clinton, looking for ways to induce additional economic activity.
The euro received a boost today when Goldman Sachs reversed their stance to bullish with an initial objective of 1.35. This can't be good news for the remaining euro shorts.
The schism between European and US policy makers remains. Europeans are talking about fiscal austerity, a concept alien to the US spend to stimulate crowd. Dollar bulls had best heed the warning issued by the Boston Fed President Rosengren that the Fed fears deflation and has more policy options. Does this not sound like they are about to increase the money supply?
There are reports in a Swiss newspaper that the Swiss National Bank was an €8B loser during the last quarter when President Philipp Hildebrand bought the euro, trying to keep the Swissie weak. It is always hard to keep another party's books, but the euro has had a 300 pip rally versus the SF and an 800 pip rally versus the USD since the end of June. The SNB may be getting a refund on some of their June losses. At what point will they have some euro's to sell?
Our early week trade to buy the euro, 1/2 unit at a time got us only 1/2 unit as we were too timid. Further we exited too early. The daily chart looks like the 1.30 might be a nice inviting round number, but short term this market looks overextended. Both the 2H and the 4H show the RSI in overbought territory. An ideal entry looks to be in the 1.2720 area, quite a ways down. Often strong markets fail to let you in where you are comfortable. We intend to watch overnight news and developments, and want to see if today's trade was new longs or a short squeeze. The following is a 4H chart.
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.