Ralph Shell @ 12:54 PM, Monday September 13 2010
This morning the risk takers got some encouragement from overseas reports. In China, retail sales, were up 18.4% over last year, and easily out pacing the US shoppers, where tomorrow's anticipated m/m increase is expected be only 0.3%. Evidence the Chinese economy remains quite healthy was confirmed by a report of Chinese Industrial Production, up 13.9%.
With Asian equities buoyant, this was a positive input for the euro exchanges. Then, bank regulators in Basil decided that euro banks, short of capital, would have up to eight years to replace the money. Bank stocks rallied, and euro stocks climbed to a four month high.
Today in early trade, the EURUSD traded as low as 1.2703. Our weekly commitment of trader report revealed the large spec has been building a short position at the futures exchange. The total short positions by the large traders climbed to almost 76,000 contracts, although there is also 54,395 contracts of shorts. Bloomberg, perhaps carrying the message for the large hedge funds short, featured a euro article today, touting the merits of the short side versus the USD But for today, a weaker euro is not in the cards.
The euro, also got a bounce when the European Commission raised growth forecasts for the second half nearly double to 1.7% compared to the previous estimate of 0.9%. The rally carried the euro up close to the 1.29 handle, but has since started a minor retracement.
Last week, the market was focused on the short term debt problems, higher rate on Irish credit default swaps, increased Portuguese interest rates on newly issued paper, and estimates by German banks that the banks need to raise billions of new capital this year. Now with the market focused on moving these requirements further down the road we have a rally in the euro. We wonder how far this will carry. There is supposed to be a pick up in euro bond sales this month. How well will those auctions go? And let us not forget, the Germans are big beneficiaries of a lower euro. Before we start placing some sell orders, however, let us take a look at the chart.
On 09 06 we had a rally up to 1.2916, the top of a doji with a tiny wick, followed by a sharp sell off as the WSJ questioned the validity of the stress tests. German bankers then complained about the large amount of new bank capital needed. The market is short, and if the top side above 1.2916 is taken out there will be some buy stops. The MACD shows the beginning of a cross overs, the 12 day above the 26, and the possibility of a center line cross over. If we get some stops on a short squeeze, get some technical buy signals, and then get a little USD bear news, this pair may be set up for a rally above the 1.30 handle.
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.