The Euro (again)

I have got to watch this market much more closely. Twice in recent days we've had a massive pull back from record levels, and as I mentioned in a recent post, there is a distinct danger of intervention at these levels.

Here is what the last week has looked like...



On Monday the Euro tagged 1.5895 to the dollar, just 5 pips from the all-time high of 1.59. Today we are seeing a pullback that mirrors the pull back from 1.59 a couple of weeks ago. Unfortunately I can't show the chart from a couple of weeks ago, because the action all happened outside of the US market times and I wasn't watching.

Like I said, I have to start paying more attention to this market because I'm missing some big moves here.

Todays move is being blamed variously on news from UBS and/or an announcement from Deutsche Bank that it expects some substantial write-offs in this quarter. Strangely enough both of those stocks are trading upwards in early European trading, and that makes no sense to me.

What makes better sense to me is the apparent profit taking when the Euro nears record levels. I'm sure that all traders in the Euro are aware of the political pressures to manage that exchange rate. German employment figures continue to reach post-reunion records, and unionized employees are in no mood for concessions. The only way, going forward, to maintain corporate export profits will be to manage rates.

Managing exchange rates will be it's own double edged sword though, as fuel imports are currently being paid for with a strong Euro, and consumer prices are inflating far beyond the ECB target rates.

"Germany's inflation rate, based on a harmonized European Union method, rose to 3.2 percent in March from 2.9 percent in February, the government said March 28. Inflation in the euro region, which the ECB seeks to keep just below 2 percent, may accelerate to 3.5 percent this month, according to economists' estimates."

Source: Bloomberg

From a longer perspective, I will point out the most common exchange rate chart that we post here, the Two Year Weekly FXE, with the PSAR.


The bull flag is in place, but note the enormous volume of profit taking from two weeks ago. The Euro-bulls are a jittery bunch these days, and in my opinion the better trade is the short side when nearing 1.60 Dollars to the Euro.

Disclosure: I have no speculative position in the Euro at this time.