Friday, September 26, 2008

The Big Dollar

I am becoming increasingly bearish on the Euro. Some of this is a “gut feel” and some is from some observations and research I have done.

1. Speculative positioning continues to follow the broader market trend lower. The reduction of market longs began well ahead of the market peak (double top at 1.6000) and has now shifted to a net short position. The peak net long position was 119k contracts; currently the reading is short 40k contracts.
2. Technical indicators are quite bearish. Although I do not follow technicals that closely I have many friends in the market that swear by them. The Double top at 1.6000 was followed by two “spike reversals”. This, from what I am told is a very bearish formation.
3. A major sea change seems to be under way. The U.S. seems to be willing to do anything to keep the Global Economy moving, Sure the bailout package should be inflationary, increase the budget deficit and be bad for the dollar, but there is a saying in the market “Buy the Rumor … Sell the fact”. The dollar has been hit for a few weeks now and now that the package is out of the way I can see it bouncing.

For now I am small short and will add on the way up.

Key support is at 1.3865 and I will add on a clear break (and close below for two days) of this level.

Good Luck and Good Currency Trading



Blogger The Lonely Trader said...

Are you trading the spot pair? If so, take care to factor in the cost of the negative rollover...I'm sure you're already doing that, but as implied vols fall off a bit, your target looks more and more distant. Which means more time to acquire the first target. Which means a 2% differential having more time to eat away at your gains, on top of the risk of reversal and/or a return to volatility near key resistance for your time horizon. Where would you place your uncle point above?

12:09 AM  
Blogger Banker said...

Hey LT.

I do look at the cost of carry, one of my "rules of trading".

With the tight conditions in U.S. dollars, the cost of running this position is actually less (earlier this week it was in my favour) but that is quite unusual. My "uncle pt" is above 1.4800. I would have liked to have seen a bigger break during NY time yesterday, but it didnt occur. I will give it some time but I think if this package goes through over the weekend I could see some movement come early next week.


8:33 AM  
Blogger The Lonely Trader said...

Good luck. I read your more recent post and I'm intrigued by conditions viz other markets/regions which mitigate negative differential. Any bones you can throw a hungry amateur?

I like your approach, but can't quite wrap my mind around it yet, nor can I find good literature that explains in layperson's terms...

1:21 AM  
Blogger Banker said...


I will write up something in laymans terms and e-mail it to you.

Take Care

7:42 AM  

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