Euro/Dollar Proposes A Rally Next Week

COT shows a net ~36% increase in euro short contracts compared to last week. now, i'm not saying it wouldn't go up, just that if we see a rally it will most likely be short lived... and then it'll drop very fast. and deep, of course.

yes possibly it will go up

So do you have a target in mind?

What is the COT Report?
The Commitments of Traders report was first published by the CFTC in 1962 for 13 agricultural commodities to inform the public about the current conditions in futures market operations (you can find the report on the CFTC website here). The data was originally released just once a month, but moved to once every week by 2000. Along with reporting more often, the COT report has become more extensive and - luckily for FX traders - it has also expanded to include information on foreign currency futures. If used wisely, the COT data can be a pretty strong gauge of price action. The caveat here is that examining the data can be tricky, and the data release is delayed as the numbers are published every Friday for the previous Tuesday's contracts, so the information comes out three business days after the actual transactions take place.
P.S. I thought many do not know what is COT report and that it shows data with three days delay.

It'll go up to the 1.3750 area then head back down to the 1.3400 area. Supply and demand.

From a technical point of view, I think this analysis is correct and I certainly shall be looking for long opportunities next week. I read an article the other week suggesting that the major banks were looking for the price action to trade towards 1.40000 and all the brokers were looking for the price action to trade towards 1.20000.

My view is that I feel price action will trade towards 1.40000 rather than 1.20000. There is no doubt that there are some very major problems within the Eurozone. A number of Club-Med States have very major debt issues though there are assets. Even Greece whose debt burden is ever increasing has major assets which could be realised. I do not see Greece as being any different from an old family sitting on a mass of valuable artefacts amassed over generations. Naturally there is a reluctance to contemplate any sell or even possibly admit their existence. Italy is no different to Greece and Spain almost certainly falls within the same camp. Ireland is a different case as the problem there lies with all the banks having no money to lend as a result of massive losses arising from a slump in property prices bought on by the global recession. Finally Portugal is probably the only example of a member of the PIIGS that boasts a little bit of every problem which confirms its membership.

Assuming that I am right in my assessment that the Eurozone is cash poor and asset rich, I do not see Euro weakness down to 1.20000 or below. There may be a possibly of a retest of that level should events become nasty though in reality I do not believe that this will happen.

Across the Atlantic I see something different going on. At present the world is invested in the USD as a safe haven currency.

Continued below

Despite what else may be going on, the US remains the world’s largest economy with huge knowledge and know-how in place which cannot be unseated. Thus I do not see any doubt that the economy will recover its strength. However I do see a weaker USD irrespective of the return to full strength of the US economy. The reason for a weaker USD is that as the world continues to experience an ever increasing slow-down, the USD assets will have to be sold. It is no more complex than cashing-in on investments saved for a rainy day. Thus there will be sales of US assets which in turn will weaken the USD and I think push the price action back to 1.40000 and above.

I do think there is every possibility that EUR/USD could visit 2.0000 and above. The high of 1.60369 made on 15th July 2008 has yet to be broken. Personally I think that over the weeks and months to come, it will get broken and just maybe a test of that 2.0000 figure. After all Cable has done it spending a significant portion of 2007 with the price action trading above the 2.0000 figure and I do not see any reason for Fiber not to move likewise.

Finally some while back an experienced Aussie trader said that he did not expect to see AUD/USD at parity or above in his life-time. It actually did rather better than anyone ever contemplated and topped out at 1.10743 on 27th July 2011.

now this is tricky. we are close to the end of the year, and the yearly profile doesn't look too unbalanced right now which means that we may not see much action.
i have two things in mind - one, a bunch of short euro contracts which must be closed at some point... for sure LOWER than these levels, possibly even below 1.3145; and two, yearly important levels that could very well be revisited BEFORE the end of the year... well at least one of these - value area high (1.4586), value area low (1.3697) and peak volume price (1.4394).
so long story short - technically, we are in a downtrend. rally could be limited by upper 1.36. drop could stop (temporarily) in the 1.3150 area. december is coming... volume will dry out soon... if anything extreme would happen, i would watch for shorts from upper 1.43/1.45.

Thanks Scrat.

So probably a grind south with a cap more or less at 1.37, but the possibility of a up spike like last month to 1.43/1.45.

From a yearly perspective I find 1.335 (the year open) and 1.287 (the year's low) as quite significant. Its amazing to think that even after all of this drama, the EUR/USD is still in positive territory for the year.

*applause*

Nice post(s)

I am inclined to feel quite the opposite from you in respect to my outlooks regarding The fate of the euro(risk assets in general) and the USD( as a safe haven currency and US paper as a whole.

Frankly I think Pandoras box has been opened in Europe. The Bond markets tell all and yields are skyrocketing across the EZ at a
Record pace. The EFSF is a woefully underfunded, clunky, ineffective solution to this problem. The ECB is unwilling to monetize debt and their bond purchasing program can't and won't go on forever. Plus the market may assume Draghi will cut intrest rates even further. A very realistic possibility to drive yields down.
There are tons I'd other valid reasons to be bearish on this pair.... But... As counterintuitive as the markets are.... Who the hell knows? Lol

I guess being a CMT makes you smrt.

shows how smart I am.... I had to google what a CMT even was

Holiday reversal? It's awful pessimistic out there in media land. Fundamentals show up in charts well before they reach the public attention via the media..

hm... 1.375 entry short..., 1.4 added short... 1.45 added short...1.46 i might gave up...

The euro shot itself in the foot when it forced bond holders to take a 50% haircut on their CDS. Without default insurance bonds are repricing to account for this because if bond holders are forced to take a cut on Greek bonds, why not those of Italy, Spain, France? When the yields stop rising without the help of ECB purchases which they say will be capped at 20B (as of Fri) then we will know the euro has priced this in and maybe it can rise. Till then I would look to sell.

My long term view is much dire for the euro. The ez is facing a recession which is going to be amplified by austerity which is yet to be priced in. And a slowdown in China and US is not going to help the export economy of Germany. This is going to guarantee further interest rate cuts. But what concerns me most is what is going to happen in the US under the debt crisis. The economy in the US is fairing well only because we haven't faced austerity but time is running out. The US is looking at a minimum of 1.5T in cuts in spending over 10years. Almost everyone agrees that figure should be 4-5T in cuts or about 450B per year. Add another 150B in the expiry in tax cuts and you have about 600B in reduced personal & government spending per year in the US. That is going to be severely deflationary. Look for a complete revaluation of the US economy over the next 1-2 years. At a minimum I would not invest in stocks till the debt issues are figured out.

But I could be wrong I've had too much brandy and the booze is doing most of the talking here.

am also bullish on euro !!!! 4hr chart is very bullish

great post tobinare, keep that Brandy close to you ya hear

Thank you - as a Euro bull, I was beginning to feel very lonely.

there's no need to feel left alone ...its quitely forming a descending wedge in 4hr chart


http://www.imagehosting.nu/images/eurodollarinadecqyq.gif

The euro is very clearly in a downtrend with lower highs and lower lows. It could of course, have put in a bottom and be reversing higher but there is no sign of that just yet. Immediate resistance appears to be around 1.3600 and support around 1.3440.

If too many people are bearish, the price is more likely to go up instead of going down. Why? If you are bearish and have sold EUR earlier, you probably see some profits now. If the price stop falling or start to turn, which has happened last Friday and this morning, bears will sart worry and tempt to close the short position, that generates a buy action. At the same time, early bulls are probably still in red, they will not sell now, and the late bulls will start buying if they see the price going to turn.

So overall, the market foces(both bulls and bears) are buying. That'll push the price up, provided the EUR price stop can hold up today despite the bad news in the weekend.