Tuesday, May 5, 2015

Euro Currency Not Ready for Prime Time

Thankful that the EU has not gone asunder in the last month, we should not mistakenly rely too heavily on a glorious economic recovery there that would prompt an outsized rally in the Euro currency.  The Euro has recovered over 7% since the mid-April low near 105.  While there is good reason to expect that conditions in the EU will not deteriorate immediately, the now successive positive economic data prints in the United States seems likely to generate overwhelming attention going forward and thus suggest a strengthening of the dollar against the Euro again.  

Technically speaking, there was a bearish ‘shooting star’ that formed at the recent high just below 1.13 on Friday, May 1.  Additionally, that session marked the 7th new high without a three session pause and thus would be recognized as indicating a ‘stretched’ bullish trend.  Monday’s price action acted to confirm the bearish implications of the ‘shooting star’.  Finally, today’s price action appears ready to create a bearish ‘hanging man’. 

The recovery today should not be mistaken as a bullish indication unless the Euro firms considerably more from current 1.120 (ECM5).  Unless that happens, a prudent positioned would wait until tomorrow for a likely confirmation of this latest bearish technical development.  A more aggressive position taker would consider acting now. 

The 3 day May 1.10 / 1.075 put spread on CME Euro currency trades 16 / 18.     

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