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12 Aug 2013
Euro futures sporting toxic mix of technical tells
FXstreet.com (Barcelona) - The euro futures and EUR/USD have seen nice upside over the last 5 weeks. Do CFTC COT data and a key technical oscillator indicate trouble to come?
CFTC data can be useful, but read carefully
Last week, the Commodities Futures Trading Commission (CFTC) released the widely-watched Commitment of Traders report. The report breaks down net long or short positions in all of the traded contracts on the different commodities and futures exchanges. More importantly, it tells us the net positions held by commercial traders, non-commercial traders and smaller speculators. The key to watch is the commercial traders’ net positions.
For the euro futures (whose movements are tied closely to EUR/USD), the commercial traders’ net position has been declining recently as the euro contracts have continued to fly. That’s a bearish divergence – in the language of technical analysts. Meanwhile, the price action recently has moved the euro into overbought territory according to the widely-followed Williams %R indicator. The last two times that the COT-Commercials number dipped this low at the same time as the %R indicator was reading overbought, the EUR/USD cross fell from 1.3711 to 1.2744 (2/1 – 4/4) and from 1.3415 to 1.2755 (6/19 – 7/9). So, will last Thursday’s peak at 1.3399 lead to a similar sizeable drop? Only time will tell. Interestingly, last week’s CFTC COT report also showed a sizeable week / week increase in the net long position in the euro....by speculators.
Technical outlook for EUR/USD
The EUR/USD topped out Thursday at 1.3399 – just shy of the 1.3414 resistance level that leading technicians have pointed to as critical resistance recently. The candle the EUR/USD put in on the charts Friday was not a “key reversal” candle like a bearish engulfing or island reversal, the EUR/USD cross did close below the mid-point of Thursday’s trading range. If we see some follow through to the downside early this week, technicians may get busy with their calls f a top being made last week. Above the 1.3414 level, the next level of projected resistance will be 1.3569. Short-term support comes in at the 7/31 peak at 1.3344 and is followed by the 8/5 low of 1.3232.
CFTC data can be useful, but read carefully
Last week, the Commodities Futures Trading Commission (CFTC) released the widely-watched Commitment of Traders report. The report breaks down net long or short positions in all of the traded contracts on the different commodities and futures exchanges. More importantly, it tells us the net positions held by commercial traders, non-commercial traders and smaller speculators. The key to watch is the commercial traders’ net positions.
For the euro futures (whose movements are tied closely to EUR/USD), the commercial traders’ net position has been declining recently as the euro contracts have continued to fly. That’s a bearish divergence – in the language of technical analysts. Meanwhile, the price action recently has moved the euro into overbought territory according to the widely-followed Williams %R indicator. The last two times that the COT-Commercials number dipped this low at the same time as the %R indicator was reading overbought, the EUR/USD cross fell from 1.3711 to 1.2744 (2/1 – 4/4) and from 1.3415 to 1.2755 (6/19 – 7/9). So, will last Thursday’s peak at 1.3399 lead to a similar sizeable drop? Only time will tell. Interestingly, last week’s CFTC COT report also showed a sizeable week / week increase in the net long position in the euro....by speculators.
Technical outlook for EUR/USD
The EUR/USD topped out Thursday at 1.3399 – just shy of the 1.3414 resistance level that leading technicians have pointed to as critical resistance recently. The candle the EUR/USD put in on the charts Friday was not a “key reversal” candle like a bearish engulfing or island reversal, the EUR/USD cross did close below the mid-point of Thursday’s trading range. If we see some follow through to the downside early this week, technicians may get busy with their calls f a top being made last week. Above the 1.3414 level, the next level of projected resistance will be 1.3569. Short-term support comes in at the 7/31 peak at 1.3344 and is followed by the 8/5 low of 1.3232.