The Euro came within 15 pips of the October high at 131.39 this past week before Boss Draghi's "no comment" comments on Thursday. Then the currency dropped over 200 pips in the first serious correction to the current 4-week up-move following ECB President Draghi's press conference refusal to answer questions regarding the Italian and Spanish debt situations. From a technical perspective, our studies are still green-lighting long swing and long day trade set-ups in the Euro, with support down to 1.2800. For longer-term position trades the Sept/Oct highs are seen as a sell set-up. What will likely continue to keep the Euro propped up in today's interrelated market place is a stable Aussie and U.S. stock market and a weak yen, and last Friday's U.S. payroll data support all three of those.
Stability in asset class markets and weakness in the U.S. Dollar and Japanese Yen spells normalization for financial markets, i.e. a less risky environment, which benefits long Euro positions. What also benefits the Euro we suspect is the short positions of so many macro traders. Every rally in Euro brings those longer-term traders, and their customers, a little more pain. A move above 132.00 would likely stop a lot of shorts out, with the subsequent momentum pushing the Euro onto its 2012 highs just below 1.3500. The bottom line in our book for the Euro is the majority of tradable patterns are still higher despite the current two day correction.
The Aussie is showing a series of sturdy bull patterns on its 4-hour and Daily charts even in the face of last Thursday's spate of U.S. Dollar strength against the Euro. The Reserve Bank of Australia continues to gets high marks from traders and investors, many of which had priced in the Aussie rate reduction the previous month. Modest growth in the U.S. and a stable Chinese economy - both slight improvements form previous quarter's expectations - means Aussie debt remains the carry de jour for institutions and sovereigns. What also supports Aussie on the upside is that the majority of traders at Oanda, one of the biggest Forex houses, are short. Oanda's open position ratio stands at 60% short. Given traders pay the carry for being short Aussie, we see that block of shorts as being less than strong handed. In the Aussie, similar to what we see in the Euro, is a situation where if current buy stops above the market were elected, the momentum could lead to new highs for the year.