Last week the EUR/USD Forex pair opened at 1.29490 and closed at 1.28370. The USD/JPY opened last week at 79.790 and closed at 84.470.
Over the past year we have seen the U.S. dollar rise and fall, as did the euro and yen. Looking at Japan, we know that when the yen gets to high, their exports suffer and while 50% of Japan’s economy may be built on consumers spending in Japan, its lifeblood is its exports. So, we have seen the BOJ take steps to keep the Yen down. This has not been an easy task as the euro is having trouble because of the European debt crisis, and Ben Bernanke keeps up with QE 1-2-3. The Fed knows a weaker dollar helps U.S. exports. The Fed also knows that 70% of the U.S. economy is based upon consumer spending (this is questionable by some). And what about the euro? Well, the largest economy in the Eurozone of course is Germany and they have seen a contraction of manufacturing. If you remember when the euro was up at 1.48000, Germany probably saw a drop in exports. So now we are seeing three of the world’s largest economies trying to manage their currencies, however the euro is not just Germany’s currency. Germany can push policy in the Eurozone to lower the euro, but unlike Japan and the United States, needs support of the other member countries. The balancing acts by these powers have brought solid opportunities to currency trades worldwide.
Looking at the EUR/USD daily chart, you can see ADX numbers at 19.1 and rising reflecting a weak trend, but DI- is now over DI+ with an increasing DI Differential. MACD is bearish with today’s price action pushing MACD below the zero-line of the histogram, and Stochastics are oversold.
On the daily chart of the USD/JPY, you can see ADX at 69.4 reflecting a very strong trend. MACD is bullish but is dropping divergence on today’s price action, and Stochastics are overbought.
Proceed to Page 2 for the latest COT Data...
On the weekly chart of the U.S. Dollar Index, you can see how a posture change started early in September as Dealers liquidated net shorts and became net long. This past week we saw Dealers go from 5,273 contracts net long to 4,602 contracts net long. To see the U.S. Dollar Index strengthen we will want to see Dealers become net short once again.
On the weekly chart of the euro, look at when Dealers had their largest net long position and look at the price action at 1.22000 — the previous weekly low. And look what happens to the price action of the euro as Dealers liquidate net longs. This past week we saw Dealers net long 40,360 contracts a move up from the previous week of 34,702 contracts.
Last, but not least, look at the weekly chart of the yen. Dealers are once again net long 16,206 contracts. A week earlier they were net short -1,426 contracts. Better yet, look back at early September where Dealers were net short -57,876 contracts. Like the euro, look at the large net long Dealers had in March 2013, and look where the yen was trading, interesting isn’t it.
If you need help understanding how to understand how to use the NEW COT report to your benefit get instant access to my new e-book "What Lies Beneath ALL Trends". It is filled with eye opening information.Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.
Proceed to Page 3 for this week's detailed fundementals...
So now we all wait to see who becomes the next U.S. president. Will that change how we look at these currencies? Probably not. As a matter of fact, my trading criteria will not change on who is president. Have a prosperous trading week.
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