The U.S. dollar has been in a bearish trend for quite some time against the euro, but the charts are telling me this may be changing.
March euro futures have been stuck in a range of about $1.43 – $1.45 for the past few sessions, where we’ve seen a lot of volume occur. The technicals are telling me this market is better to trade on the downside right now. As mentioned, the market has been trading more or less sideways in January, but on December 17, 2009, the euro saw a high of $1.4531, which I think is a good level to consider establishing a short position. I would recommend putting a stop above the high on December 14 at $1.4682. Your profit objective on this trade would be $1.4215, the low of the recent move on December 22, 2009.
Every trade is different, but for a market trending to the downside such as euro, I favor using old highs and lows as targets for entry and exit points. I also watch the five, eight and 14-day Relative Strength Index (RSI) to determine whether a market may be overbought or oversold.
After a bearish 2009, the U.S. dollar has been rising over the past few weeks, actually starting to move up in the weeks just prior to the Christmas holiday. Right now I would consider playing the long side, buying the ICE U.S. Dollar Index futures near 76.94, the low seen on Monday, January 11, 2010, as well as on December 16, 2009. I recommend putting stop below 75.80, the December 7 low, and my objective would be a move to 78.77 or better, the high on December 22, 2009.
As mentioned, despite a few fluctuations, I think the charts remain look favorable for the dollar to continue moving up against the euro. The remainder of this week, we have a few key economic reports that could help cement the dollar/euro trend. The “Beige Book” report comes out on Wednesday, January 13, December retail sales and November business inventories are due out on Thursday, and the December Consumer Price Index (CPI) and Industrial Production reports come out on Friday.
This past week, market participants have been focused on weak employment, and whether it will derail the economic recovery. The December employment report was released on January 8 and came out worse-than-expected, showing a drop of 84,000 non-farm payrolls.
That report lead people to believe perhaps the Federal Reserve might not be close to raising short-term interest rates, and might even stay on hold all year. As of Tuesday, January 12, Federal funds futures were pricing in odds of only 8 percent that the Fed would raise its key short-term lending rate (Fed funds rate) from near zero currently to 0.50 percent by June 2010. However, I think the odds are a bit better that the Fed will raise rates, based on other economic reports that are showing signs of improvement in the economy. The Fed could even act in the first quarter of 2010. If that happens, the dollar should spike higher. I think it’s a good idea to position yourself with some type of strategy to take advantage of that potential scenario.
Please feel free to contact me regarding any questions you might have, and to develop a customized trading strategy using futures or options in these or other markets.
Greg Perlin is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 800-437-4189 or via email at gperlin@lind-waldock.com.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
