Wednesday June 2, 2004 - 17:55:41 GMT
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Dollar Does a Dance
The dollar has managed an eventful and surprising rebound once again off its lows in NY. The day was lagging until just before option expirations at 10am NY time saw the market take out the exotic option in euro at 1.2300 to a high of 1.2307 and a full reversal was seen shortly after. Most traders believe this was a false break and because we could not break 1.2310 a lot of traders were left long into the European close and this lead to a massive liquidation down to 1.2313. Some are attributing a few things to this move as the squabble over how high oil prices should be is possibly helping the greenback as oil prices eased just a little today. Another possibility is how far the AUDUSD has come off in the past few sessions being an indicator. The commodity currency has given back all of its gains and then some since last Thursday as we traded to a new low of .6958. This was in conjunction with the RBA leaving rates on hold last night as well as a worse than expected GDP. There is new talk of a massive option in the market that must be attracting price action lower, the option is at .6685 and most traders are expecting to get there possibly by end of the week. We also had Fed Chairman Greenspan on the wires this afternoon with hawkish comments released stating “History is poor guide to pace of rate hikes” and also saying low inflation suggests “measured rate hikes”. This gave the dollar a boost to a daily high of 1.2510, off the lows of 1.2410. Rumors also circulated that China is going to participate in a rate hike as well, although since seem to be unfounded, the market suggests otherwise as of right now. Our final analogy to the bounce is a correlation in the dollar index. We have managed to bounce off the support in the dollar index a few times now every time the dollar looked at its bleakest point. Today was another day we reached the support zone and bounced. How long before we don’t bounce again?
Technically Speaking: The euro looks in trouble but a lot of players are still long after paying up to break the option barrier across 1.2300. The charts are looking bleak as well as the Slow Stochastic is reading 20.27 and the RSI is 38.43.
Gain an Edge: We suggested buy euro on the dip yesterday and we will suggest the same, we will buy euro at 1.2200 and 1.2160 with a stop below trend line support at 1.2135. Our take profit will be 1.2365.
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