Thursday April 7, 2005 - 18:54:32 GMT
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Dollar volatility despite quite economic news week
The dollar has had a very volatile day, while still within the confines of the recent trading range. The dollar closed yesterday against the yen at the high’s 108.69, and traded as low as 108.10 on stop loss selling. The market tested some momentum type names at the 108.10 rate, could not break, and reversed positions through 108.40. The euro closed at 1.2875 traded as high as 1.2940 and spend the NY afternoon collapsing on stop orders through 1.2890. The bank of England left its overnight rates steady at 4.75%, and the way Sterling initially traded, you would have thought the cable players were looking for a hike. There have been comments from the EU, specifically Trichet, which were interpreted as dovish toward interest rates. The statement was further qualified to reflect that rates are ‘appropriate”.
This has been a very quiet week from the economic new front perspective, but the dollar is certainly not backing off its recent run up. There was some interesting text from the Feds Santomero which could be interpreted as dovish on US rates. The recent run in the dollar has definitely been fueled by the interest rate differential. Should that idea lose credibility, look for a reversal in the near term.
Overnight the euro retraced almost .618% of its move from the 1.3060 level to the 1.2800 low. It also broke a short term trendline at 1.2890 (see above) and is closing the day near the lows. The candlestick view can easily be viewed as very bearish. We see 2 very compelling ideas in the short term. The first is to sell the euro at market 1.2850, and look for the pair to break 1.2800 and make new lose.
The second is to respect the line in the sand at 1.2800.
GAIN AN EDGE
We will buy euros at 1.2805 with at 1.2795 stop and a limit at 1.2885. This is a very low risk, high reward trade.
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