Morning Futures Roundup
Traders Showing No Love For The Euro
Investors and traders continue to lose faith that a meaningful solution to the European debt crisis may be near and have voiced their displeasure by shunning the Eurocurrency, which has fallen to lows not seen since January of this year. The Euro has been trading on both sides of psychological support at 1.3000 following the auction of 5-year Italian government debt earlier this week. Italy was able to auction off 3 billion of new 5-year notes, but only at a record high yield of 6.47%. Last week's announcement by EU leaders of a new set of rules to monitor individual nations' budgets and economic policies seems to have been dismissed by many traders, who are looking for more immediate actions to help stem the crisis of confidence in Europe. Many market participants would like to see the European Central Bank (ECB) become a more aggressive buyer of the debt of its struggling member nations, with a policy similar to the Federal Reserve's quantitative easing. The various ratings agencies have also noted their concerns with the lack of a "solution" to the debt crisis, with Moody's planning on reviewing all 27 members of the EU for a possible ratings downgrade. Though Euro bears certainly have the upper hand, the value of the Euro vs. the US Dollar is still well above the lows made in 2010, despite what appears to be a much bleaker outlook for the EU. Some of this can be explained by the repatriation of Euros from overseas back to European banks and businesses to help meet liquidity needs. The most recent Commitment of Traders report shows large and small speculative accounts adding to an already large net-short position in the Euro futures, which now totals over 120,000 contracts as of December 6th. This does not include any new short positions that were established as the Euro broke below recent support near 1.3250. However, the large net-short speculative portion might be a double-edged sword, as any "bullish" news out of Europe could be met with a bout of aggressive short-covering buying by weak Euro bears, making the efforts to remain short the Euro fraught with potentially large volatile price moves as we head into 2012.
Looking at the daily continuation chart for the Eurocurrency futures, we notice prices trading near the lower end of the downward channel starting at the 2011 highs made back in May. If we draw an uptrend line from the major lows made back in June of 2012, we see that the bullish trade was definitively broken back in September, and even the upward correction in late October failed to move prices back above the trendline. Prices are now accelerating away from the 20-day moving average, adding to the near-term selling pressure. The 14-day RSI has moved into oversold territory, with a current reading of 29.89. The January low of 1.2870 looks to be the next support level for the Euro futures, with resistance seen at the recent low of 1.3212 made back on November 25th.
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