19 August, 2009 by Stephen Leahy
Boston Aug 19 08:15 EST
We have had a long-held bullish position in EUR/USD for quite some time now. Our indicators told us to go long back on July 20 (www.backbayfx.com/blog.php) and we actually entered the trade July 30.
Since then we have sold and bought back portions of our position as market conditions warrant. Our most recent posting re-affirmed our long position. Today we go back to the same chart as we looked at on Aug 14th.
The below daily chart of EUR/USD shows that the bottom of our channel was violated and EUR/USD closed the day (5pm EST) two days in a row below that level. Today EUR/USD is presently trading right at the level of the bottom of our marked channel (EUR/USD present bid at 1.4108). Though we have not changed out outlook for higher EUR/USD, we are watching closely. From a technical point of view, we need to see a close above the channel bottom (1.4154) and ideally above the midline of our Bollinger Bands (1.4196) to remain comfortable in our view. We are closely watching the close today.
From a market psychology point of view, we revert to our blog posts highlighting the China-led selloff in global equities over the last few weeks. That shows a reduced demand for risky assets, of which EUR/USD is considered. After a respite yesterday, the Shanghai index fell hard again today with European and US markets seeming to follow. The one hopeful spot in our market analysis today is that the US 10 year Treasury Note has been sold off since yesterday. As the de-facto safe haven asset class, seeing a selloff in the 10 year Notes is a sign that investors are not fleeing to abandon riskier assets. So possibly the link between Chinese Equities and other “risky” assets is weakening in the short term.
The spider wed of global capital markets continues; pull on one side of the web and the entire web has to adjust, but it does so in a non-linear fashion.
Stay Nimble!
Stephen Leahy
Back Bay FX Services, LLC
www.backbayfx.com
Thanks to FX Solutions for the below chart.
