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Are Some of These Markets Changing Direction?

The collapse in the Euro, commencing in early December has surprised quite a few experts.  This week Harvard professor and former Reagan economic adviser, Martin Feldstein said this sell off was unjustified.  Markets, however, do what they are going to do, and to an extent they are always right.  Then when they have new facts and trades are digested, the previous day's market was indeed wrong.  How effective would Professor Feldstein have been if he had pleaded his case to the margin clerk that the market price was unjustified.   The definition of a manipulated market is one in which you are wrong.

The daily chart of the euro looks like a saucer bottom has been formed over the last six weeks.  This weeks action, as portrayed in the weekly chart, hints that a rally might be coming.  Indications that Janet Yellen, a free short term money advocate, may be the new Vice Chairman of the Fed, was bearish the dollar, while the euro was helped by a Goldman memo that a rally back to 1.45 was their target.

Going back and looking at the traders consensus as evidenced by the the COT report is interesting. On data from the report of 12-01-09 reveals that speculators were long euro 48,488 contracts, by default short the dollar.  Moving forward to data from 03-02-10, the speculator in the euro futures is now by default long 65,526 contracts of the USD.  Certainly this massive shift of positions has had something to do with the sell off.  What happens next?  Will we see a short covering rally?

The daily chart on the pound, like the euro looks like it may be carving a bottom. The RSI has recovered from the oversold area, and the MACD has given us a cross over down in deeply negative territory.  Back in late November the specs were not long the pound, but rather had a modest short.  Now the specs are short the pound by a massive 82,190 contracts in the last report.  Open interest this week has had immense growth in all currencies, but especially in the pound.  At what point do the specs start to bail?

The C$, one of the bulls favorites, has finally managed to forge a new high versus the USD, trading at 1.0153.  Trading volume in the futures this week has been huge.  The increase in the open interest in the past five sessions is in the vicinity of 50,000 contracts.  The implication here is, there are some entities here with very deep pockets who are willing sellers of massive amounts of the loonie.  Are these sellers large banks who are lightening their ownership of C$?

There are some currency stories coming from Asia.  In Japan the Prime Minister and the Finance minister are trying to get the Bank of Japan, to assist in a program that would weaken the yen.  It is difficult to tell if this is real or merely posturing.   The Chinese news continues to be an enigma.  Rumors that the yuan is about to be revalued versus the USD abound, but there are other stories that the Chinese are upset that President Obama may formally accuse the Chinese to be currency manipulators, who are almost as vile as health insurance companies.

No charts today.  Have a great weekend.

Disclosure: no positions