Getting Closer to a New Euro Short?

Good Morning! I’ve been out of the office for over two weeks, and it’s nice to be back with the gang on the desk. I’ve been watching the stochastics on the daily EUR/USD chart to get a sense of when looking to sell into the recent strength might be appropriate (that is, profitable). In the mid-80s, we aren’t there, quite yet, but the most recent CFTC commitments of traders reports, although not a perfect proxy for the interbank market, suggests that enough short Euros have been covered to make a renewed push lower possible. The net short position was still large last week at -16.0 bn, but that’s up from a record short of -33.0 bn back on June 5.

On the daily chart,  we had an inside vertical bar yesterday, but with the U.S. closed, that may not be a good indicator this time around. It does appear that 1.2440 could provide some support on a pullback, with 1.24 a potentially significant psychological level. While there has been a reduction in short positions, I’m not acquainted with any enthusiastic longs, so renewed selling , rather than stops, will probably be needed to precipitate a move down. We get the ECB announcement on Thursday, and my suspicion is that the details of what is expected to be a sovereign bond-buying program may be disappointing to recent EUR buyers.

With that said, the uptrend is in place, and should be respected until it objectively is broken. Still, taking advantage of a potential pullback for 150-200 pips would be an appealing enough way to spend some time.  Again, the stochastics would suggest that EUR/USD  possesses the potential to move a bit higher in the near term; we’ll see if traders get nervous today and tomorrow, or if they’re confident enough to take some offers prior to the announcement.

Best of luck.

About the Author Brian Keith

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