Tuesday October 19, 2004 - 18:31:11 GMT
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The option market continues to play havoc with the markets as 1.2530 continues to hold the top side in euro. After unimpressive US figures once again this morning the dollar was unable to catch steam to the downside. CPI came in as expected at 0.2%, ex-food and energy was +0.1% form expectations. Housing starts were lower than expected but building permits continue to rise. This initially had the dollar a touch lower but than we had a bounce off the 1.2280 levels and option players selling in front of 1.2550 has capped the euro. There were rumors of a central bank trying to push the euro higher this morning by being a big buyer thru 1.2520 but this was capped by a wall of selling in front of the 1.2530 area. We have remained in a range of 1.2455 last nights low and 1.2530 today’s high. This should continue to hold until one side gives away. There are rumors of a huge payout in the option market if 1.2550 is breached and this will be heavily defended until it rolls off in a few days. The morning also had the Bank of Canada hiking rates as expected .25 basis points; this gave a small lift to the dollar but by mid afternoon was trading considerably lower and looked heavy. The 1.2500 area is the line in the sand, if we breach this level we head considerably lower. The same holds true with the greenback, as we continue to hold just above 1.2280, a break of this could signal an extremely bearish event and lead us to sub 1.2100.
Technically Speaking: We continue to stay within a tight range in euro and the daily as well as the hourly is heading towards over bought area. We think this 1.2550 area should be defended heavily until the option rolls off.
Gain an Edge: We are better sellers of euro up here with a very good risk reward because of the option in place at 1.2550. We will sell at current market of 1.2525 and leave a tight stop in place at 1.2550; our take profit will be 1.2410.
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