Scotty B Trader Talk

Sunday, February 20, 2011

Euro Watch

I've slowly averaged into a long EU position over the last couple weeks. I began averaging in @ 1.35, there is a high likelihood that the market will retest it's latest low of 1.3425, (about a 95% chance), by April 15th, this year, possibly even 1.325.

There were rumors floating around the past couple of weeks about large net specs dumping their long inventory in EU, however, the last two COT reports only show a ~7500 contract decrease. Looking to EU futures for clues about upcoming rates, shows a general bullish sentiment. We've seen net buying since early January on increasing open interest. The high volume price of the last month is @ 1.362, price is currently trading above that level.

Many analysts are critical of the vague nature of any action plans coming out of the EU in regards to their debt crisis, sidelining some speculative interest, however, many also have their eyes set on a possible impending rate hike.

It's impossible to know for certain how the various fundamental events will play out, but I maintain a bullish outlook. Goldman's 1.40 by May prediction leaves plenty of time for another dip during this hawkish EU phase.

It is highly likely that the market will clear 1.375 this week, but I think at this point in time that any gains will be limited.

My personal game plan is to add more to my long play on the next dip, if it materializes that is.

Monday, January 31, 2011

When Goldman Speaks, They Sach The Competition

I don't know how many of you pay attention to how the FX market reacts to the levels mentioned by Goldman Sachs, but I find it quite interesting. They were right the market with their last prediction that EUR/USD would trade to 1.37, indeed, last week we saw prices reach $1.375. I don't think it's a real surprise, Google tends to favor Goldman Sachs in regards to their commentary on the FX market. I believe this is simply a matter of a self fulfilling prophecy. If market prices < Goldman's widely published valuations then traders will continue to arbitrage the two values; it's an orderflow inducement.

Last Friday, Goldman reported closing it's long EU position, but said it is retaining it's bearish outlook on the US Dollar and offered further bullish price projections for EUR/USD, namely 1.4 in three months, 1.45 in 6 months, and 1.5 in 1 year.

Goldman reported it's long position on the 13th of January 2011, EU was trading in the low 1.30's at the time.

Goldman say's they are looking for better opportunities to express their bullish outlook on the Eurozone, I suspect they mean a discounted price.

On a fundamental level, Goldman cites a steady stream of good news coming out of Europe and increasing investor confidence in the Eurozone to handle it's own debt crisis, and I tend to agree.

I will be watching the 1.325-1.35 level for signs of support. Who knows, maybe Goldman will do it again and we will in fact in a year's time see EU at the 1.5 Level.