It's Not The Economy, Stupid - Trader Warns "It's All About The Euro"

Tyler Durden's picture

With the dollar set for its worst year in 32 years (and if that trend continues, a considerably bigger drop from here), the euro is at its strongest since January 2015 - to Draghi's dismay - as no matter what the 'economies' either side of the Atlantic do, the trend remains your friend... for now. The big question, as former fund manager Richard Breslow notes is "So where do we go from here? Or, more properly, what can we use for signs?"

Via Bloomberg,

Do you think the euro goes home every night and is serenaded with a gusty version of "For He’s a Jolly Good Fellow"? Given how it’s been trading, it wouldn’t be a surprise or undeserved. There have been impulsive days higher and moments it looked under stress, yet ended up holding support. And not just against the beleaguered dollar but a virtual pantheon of other currency crosses deemed to measure its relative strength. It seems to be an appropriate song to mark the achievement because it too is shared by many countries not always on the same page.

Currency markets love a good story. And, in some cases, like now, are willing to embrace one that looks like it could have a happy ending.

The euro zone economy is doing better. Political risk has lessened and they may be actually inching toward some form of taper. The fact that unemployment remains way too high, political risk deferred isn’t the same as eliminated, and they are nowhere near their inflation target is for later.

 

Foreign-exchange traders also have a strong affinity for round numbers. And reaching targets that become personal challenges. They’ve little concern for overshooting current fundamentals when they get the bit between their teeth, with no hesitation to extrapolate galore. It is, after all a game, and that’s what makes currency traders so lovable.

 

But they also adore the parlor trick of calling a turn. Especially if they’ve missed a move that can morph into a source of torment unless it has a serious pullback to let them in. Sounds familiar, doesn’t it? The difference is, FX traders tend to get bearish on dips and forget to buy it.

 

So where do we go from here? Or, more properly, what can we use for signs? One thing that’s characterized this entire move is it’s been equally impressive versus a broad number of other currencies. Don’t focus on only one cross.

 

And don’t over-analyze intra-day noise. Closes are the only things that matter. And it’s probably best to leave dailies to the day traders and use weekly and monthly charts which, given these moves, have much more detail to share. It’s a testimony to the scope of this sea change in the euro’s fortunes that the moving averages you need to use are like everything else in this environment; a search for duration. If you use weeklies, think 200- or 233-week moving averages. If monthlies, keep a close eye on the 55-MMA. Wow, who would have thought I’d be saying that looking back at Q1?

 

 

One conclusion you can’t avoid making is it’s in serious play - against everything.

It’s the beginning of the month and mid-week ahead of lots of news, so it’s problematic to make too much of one day’s price action. But you know traders will be gunning for that very remarkable 1.20 versus the dollar. It fits every requirement.

  • Technically beautiful on the charts going back to the euro’s launch.
  • There will be option structures galore beckoning at that price.
  • That will be the key battleground, with lines, Fibonaccis and the kitchen sink up for debate.

EURUSD just ran stops above 1.19...

First, however, it will have to clear the hurdle, on a closing basis, of what could end up being a triple top near 1.1850. Versus the others, it has yet to do anything wrong.

The USD Index just plunged to a new cycle low...

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Stuck on Zero's picture

All the peripheral EU countries are getting the shaft with a high Euro valuations.

gunzeon's picture

they won't care, wherever everyone goes for a holiday this summer they'll be enjoying their valuable Euros

Mr. Kwikky's picture

...And the real wealth/money pours via crypto into silver and gold. Crypto and precious metals twin destroyers of the fiat ponzi scheme..

they are intertwined!

ali-ali-al-qomfri's picture

Beware the 'Snapping Crocodile' chart.

While fierce looking it has no real teeth.

sticks head in side crocs mouth- "see it's harmless".

order66's picture

Dollar's history. Fed trashed that thing and is now stuck with it.

Doom and Dust's picture

If this goes on much longer we'll have another 'euro crisis' soon.

No shortage of suspects.

Bill of Rights's picture

How cute....

 

https://www.forbes.com/sites/nickclements/2017/07/31/new-rule-makes-it-easier-to-get-a-mortgage-with-student-loan-debt/#66da4a86173d

 

The new statement from Fannie Mae makes it clear:  the reduced payment can be used, even when the payment is $0. According to Fannie Mae, "if the lender obtains documentation to evidence the actual monthly payment is $0, the lender may qualify the borrower with the $0 payment as long as the $0 payment is associated with an income-driven repayment plan."

This is important, because the payment calculation for a student loan (10% of the discretionary income) is different from the DTI requirement of a mortgage. Many Americans could find it easier to qualify for a mortgage while in student loan debt.

 

libertyanyday's picture

its a piece of colored paper, like the game monopoly.  Why do sane people trade their sweat for a piece of paper that can be redeemed for ..........well it cant be redeemed for anything.............and the economists are dismissing gold and silver.

LawsofPhysics's picture

Don't overthink this...

"Full Faith and Credit"

asteroids's picture

It's all about timing. When you smell fear and panic go long EPV and EUO!

Bockerglory's picture

So EU is Germany and Euro rise means those exports are more expensive.And my gut instinct is a 3% dip in German exports would rip Germany into recession.

 

All those mouths & social welfare demands will not be satisfied & Germany will want to up the QE to lower the Euro.

 

FX wars...

OliverAnd's picture

While it may be more costly to purchase a European vehicle outside the EU, the cost of producing these vehicles will be lower as metals, plastics, leather, etc will be cheaper if sourced from outside the EU.  Of course for this to happen you need to see this trend to continue for at least 18-24 months.  For now prices have been locked in for the next year or so.  The Euro will reach 1.30+ by the end of the year; much higher in the case of a war in Korea or elsewhere.  

Xibalba's picture

Germans will blame it on environmentalism...NO JOKE.  The auto industry will have to lay of about 630k, and that's just the fucking engine mechanics.  They'll say it's to make way for the 'future' of electric cars, ya'know...to save the planet.

P.K.Snosage's picture

Looking beyond the lows of 2010 and 2012, Niall O’Connor, a technical analyst at JPMorgan, pointed toward $1.2167 as another level to monitor. That figure marks the 50 percent retracement of the decline from the euro’s 2014 high just shy of $1.40, he said.

Further euro upside could be a grind, however, amid technical signals that the currency is "as overbought as you can get," O’Connor said.

TheNuclearGenie's picture

The central banks really made a spectacle out of themselves

LawsofPhysics's picture

LOL!!!  What part of ALL FIAT will die don't these fuckers understand?

WarPony's picture

In a totally manipulated "market," charts mean squat.  $ down, EUR up - whopee!  Yellen stepping on the $ to get that ole economy going for Trump, and that many other currencies would also rise is a - wait for it -... a shocker (not).

rp2016's picture

Once upon a time, in a land far away, people made a career looking at the sky. They use to predict when the weather God will pour some rain.

medium giraffe's picture

fx guide to trading the euro:

 

"short it here.....ah, fuck."

"short it here.....ah, fuck."

"short it here.....ah, fuck."

"short it here.....ah, fuck."

"short it here.....ah, fuck."

"short it here.....ah, fuck."

"oh, wait... it's going up"

"long here......ah, fuck"

"long here......ah, fuck"

"long here......ah, fuck"

"long here......ah, fuck"

"long here......ah, fuck"

"long here......ah, fuck"

Too-Big-to-Bail's picture

Ben Bernanke wrote a paper before becoming FED chair that if all countries print excess money in a coordinated, controlled fashion, it wouldn't increase inflation, LOL

 

Does inflation still mean that prices are rising based on FEDspeak?

FreeNewEnergy's picture

...and the Yankees aren't in first place anymore.

Stop the madness!

FreeNewEnergy's picture

And where the fuck is my universal basic income?

Probably in Europe. Those bastards! They probably killed Kenny, too.

coast1's picture

seriously...wtf tyler...the dollar was same as last year and the year before, and the same it was in 1975...click bait CNN..wake up tyler before you lose your audience and your friggin revenue and pop up ads.  or hire me to give you counsel, I work cheap.   The dollar was up high right before a crash in 1985 ish...then again in 2000....Tyler, do you do ANY homework?  or are you too busy getting ads, like politicians are getting dontations?  I am sorry you guys, but I use to like zerohedge, but the money has gone to tylers head...what a shame.   The dollar has been between 95 and 105 for decades..lame tyler

MrSteve's picture

Doubtless the euro is up on rising confidence in the PIGS domestic economies and banking industries. Who forgot to tell gold?

JohnGaltUk's picture

The Euro is in a suckers rally

Dode415's picture

Rumour that china is going to brand Trump a currency manipulator :)

Let it Go's picture

It should not be a surprise in our current global economy that behind the curtain central bankers could be busy manipulating currencies so they trade in a narrow range that will not rock the boat.

Many market watchers have become dubious of recent market moves and over the top efforts of both governments and central bankers to keep this so-called recovery moving forward. More on the merit of this controversial opinion and the ramifications it holds in the article below.

 http://brucewilds.blogspot.com/2017/03/currencies-are-trading-in-false-paradigm.html

 

Tonterias's picture

Make Trump wishes true