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Range Bound Trade Confusing to Traders of the Yen and the Euro
adjusted current account total
Since the EURUSD (FXE, UUP) made a spike low of about 1.2850 in early April, the euro has forged a steady recovery. It has not been dramatic, but the bears have paid a price. The short side of this pair has been popular with specs. In the futures market, the COT report showed the specs to be short 82,289 contracts on April 2nd. At that time, the spec short was large, though not as big as short positions in the yen and the pound.
During the period from early April until the May 1st - a high of 1.3240, almost 400 pips from the swing low - the spec short has naturally reduced his position. The surprising thing, however, is that he remains short 39,377 contracts. But perhaps these are merely new shorts replacing the ones who had enough pain.
New euro shorts are not hard to recruit. After all, the euro is like one large dysfunctional family. Individual needs of the various members are not equally served. A single-valued currency for the euro conglomerate does not work: EU unemployment is a record high, and the unemployment rate in the 15 to 24 year age group is creating a jobless generation. Surprising then, there has yet been a messy divorce from this diverse group.
The EU proponents rightly contend squabbles over money is a big improvement over guns and tanks fighting over boundaries. The problem here is that the Brussels cabal is usurping power from the individual states, and ignoring the obvious fact that one currency does not well serve all countries. Perhaps it has always been this way, but it seems to me there is increasing hostility to Frau Merkel and her austerity platform. Combine the political agitation with the debt and employment, there is no shortage of potential EU problems.
Trade in the EURUSD is converging into a triangle, formed with two trend lines. Eventually, all trend lines are broken, but a converging pattern makes the break-out imminent. Recently, there has been support approaching the 1.30 handle. Should the market break the top trend line, the next stop would be the 1.3140 high.
Today, the sell-off seemed to be a response to the US first time unemployment which registered the lowest since January 2008. So far the reduction in Federal spending has not resulted in a slower US economy.
The USDJPY is another interesting range bound pair. Since we cleared the 96.50 level and failed at the attempt to conquer the 100 handle, we have been trapped in this range. At 12.50 a.m. Dublin time we get important reports from Japan, the Adjusted Current Account Total. and the Trade Balance BOP Basis.
The market is expecting a positive number for the Current Account total. There have been reports the Japanese with the weaker yen, have repatriated large sums of monies invested over seas. The appreciation of other currencies versus the yen have yielded big gains, so the money has come home, perhaps reallocated to the streaking Nikkei market. It us anticipated this number will be 480.0B ¥, compared to -0.1B ¥ the previous month.
The Trade Balance is anticipated to be -274B ¥ compared to -677B ¥ in the previous period. The Japanese Trade Balance has turned negative this year, but it is expected the weaker yen will give the country a boost. Eventually it will, but it takes months to turn trade balances around. Besides, a weaker yen makes Japan's energy imports more costly.
A big dose of bear Japanese economy news might be enough to send the yen through the resistance at 100. Some of the chart boys claim the next resistance is 102.50, but the trouble I have with this move is traders are already loaded up short. The last
showed the specs were short 110,542 futures contracts. This has been a long and festive party for the bears. Perhaps they will win again, but they may be vulnerable should there be a surprise. Remember, always mind your money.
About the Author, Ralph Shell
: Traded personal account profitably for 19 of the 20 years at the CBOT. Ranked as one of the top five Forex opinion leaders on SeekingAlpha.com. Extensive career as a commodity broker and trader, formerly a commodity broker and grain analyst for Merrill Lynch in Chicago. Member of Chicago Board Of Trade for eighteen years. Floor broker for the Sparks Division of Refco for nine of those years. Also a former member of the Kansas City Board of Trade and the Minneapolis Grain Exchange. Floor trader for over twenty years, specializing in soy beans, wheat and the grains. Ten years as grain merchandiser for Continental Grain Company. Grain trading career included five years in the export grain markets as a wheat and then a soy bean trader. Also traded barge grain out of St Louis, and was the Assistant Manager of the South West Region of the US. First foreign exchange contracts in futures and options over 30 years ago well before the days of online retail fx trading. Today, Ralph is involved exclusively with analyzing and trading the forex market.
(Thursday, May 09, 2013 5:34 PM)
The EURUSD might be range bound with a bias to the southside, as you rightly pointed out. Disfunctional family indeed. The one size fit all monetary policy is plainly not working. EURUSD has fallen 100 pips today.
But the USDJPY is not quite range bound; I think it still firmly in its bullish trend, and today it had no problem breaking the 100 natural resistance level to reach 100.65. I remember when experts were saying not long ago that 90 was the big resistance level, and that if it broke through that, it would range from 90 to 100. Well, now that 100 is broken, is this beginning of the new range from 100 to 110? Or is this break through 100 just a tease, before the market hurls the yen bears back down below 100 next week?
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