Sunday, June 20, 2010

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EUR/USD. Down, but within uptrend

EUR/USD (1.2369) is down slightly overnight, but mostly in the European morning and only after trading a marginal new high. Spot remains within the uptrend from the recent sub-1.20 bottom. The uptrend is testing the longer-term downtrend in place since late-09.

Technicals:

* Trend: Daily higher; Weekly lower.

* Overbought/Oversold (stochastics): Daily neutral; Weekly oversold.

* Support / Resistance Levels: Support for EUR/USD lies at 1.1877 (Jun7 low), 1.1827 (Mar’06 low), and 1.1640 (Nov’05 low). Resistance lies at 1.2417 (Jun18 high), 1.2672 (May 21 high), 1.3094 (May10 high), 1.3692 (Apr12 high), 1.3818 (Mar17 high), 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).

Positioning:

* The CFTC, EUR, non-commercial, net position (-101K) fell back towards the record low (-105K). The non-commercial sector is susceptible to a short-squeeze. That said, we’d caution that after the position reached a record +119K in May’07, EUR continued to strengthen from 1.35 to 1.60.

* The risk reversal (3m, 25delta) is off slightly overnight but still in rebound mode from the record low as the options market attempts to price in a rebound in spot.

* Implied Vol (3m) slipped further overnight and continues to fall from the highs since Apr’09 as spot rebounds.

Cross-asset valuation: The significant correlations that EUR/USD has during the past 60 days are the 5yr yield spread (positive), the 10yr yield spread (positive), the US10yr yield (positive) and the SPX (positive).

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