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This
week, a trader from Canada sits in
the top spot with an impressive monthly
gain of 421%, followed by a trader
from the US and a trader from France.
As the EUR/USD touches 9-month lows,
the market is waiting to see what
US data has this week to tell us about
the interest rate outlook for the
remainder of the year--which means
that anything could happen between
now and next week!
Dollar Makes
Late Week Rally
Dollar bulls came out
ahead yet again last week. With a
light economic calendar, the EUR staged
a rally to 1.2350 that lasted until
Wednesday afternoon. Around lunchtime
on Wednesday, the dollar took back
100 pips against the euro in a thin
market as traders awaited Thursday’s
testimony from one of the U.S. economy’s
biggest cheerleaders, Fed Chairman
Alan Greenspan. The dollar initially
rallied as Greenspan expressed his
view that the economy in the U.S.
remains strong, but the rally slowed
as a lack of new information left
traders guessing where the Fed’s
interest rate target truly lies. It
resumed again on Friday as the dollar
reached new month highs against the
euro, despite widening trade deficit
data. Many thought that a deficit
reported below $60B would buoy the
dollar--and they were correct, as
the dollar closed the week at 1.2119.
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Divergence Between
Fundamentals and Price Action...But How
Long?
The euro strength early in the week was
most likely the result of profit-taking
and the lingering affect of the much-worse-than-expected
Nonfarm Payrolls release from the previous
Friday. We now know that the flicker of
euro strength presented a tremendous opportunity
to buy dollars and get short the euro again,
but many traders were wary of taking positions
before Mr. Greenspan's testimony. In trading,
“the trend is your friend,”
and that phrase may best explain last week's
price action. Dollar strength persisted
despite lukewarm fundamental data- in fact,
oil prices are still
rallying and the deficit reported on Friday
was actually the fourth largest on record!
Due to the divergence
between the fundamental picture and the
price action for the dollar, many analysts
believe the dollar is heading for a correction.
Others argue that deficits are no longer
as instrumental in determining a currency's
value. This camp points argues that “intellectual
property” is now the largest U.S.
export and that number is impossible to
quantify. In other words, the U.S. is
no longer a maker of “things”,
but instead, ideas. The latter group is
sitting pretty right now, but as we all
know, sentiment can change quickly in
the FX market.
In fact, this week's calendar
is full of important data. Inflation data
on Tuesday and Wednesday will stir up
talk of interest rate outlooks once again.
If inflation comes in lower than expected,
the rate-tightening outlook may once again
become dovish, bearish for the dollar.
Of course, the opposite could happen as
well. The calendar is full of data this
week, and by far the most important release
happens on Wednesday at 9:00 AM EST, when
the Net Foreign Security Purchases, or
Treasury International Capital (TIC) comes
out. This number represents foreign holdings
of US treasuries. Last month's release
was just $45.7B, which was not enough
to cover the trade deficit. One month's
data could be an anomaly, but a string
of releases like this puts the dollar
and its supporters in a precarious situation.
It should be an exciting week!
Visit us again to
see whether our Canadian, French and American
traders were able to keep their seats
after next week's data comes out. In the
meantime, trade hard and trade smart!
This week's trade utilizes short-term moving
averages (5- and 10- period) as well as
candlesticks to identify and confirm entry
and exit points. We enter the trade on a
bullish moving average crossover on 6/06
and exit the trade after bearish long shadow
candle on 6/08. A long shadow formation
like this signals that buyers were unable
to sustain the new highs and that sellers
now have the upper hand. Buy
EUR/USD on 6/06 after moving average crossover
at 1.2260.
Exit on 6/08 after long shadow candle
formation at 1.2320.
5 Lots x 60 pips =
300 pips
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