0 comments

Eurodollar Falls on Bernanke; Justified?

by on June 20, 2013 5:13 am GMT
 

In the few days of my Forex Root absence, I was managing eurodollar positions gearing up for the highly speculated FOMC minutes and whether Bernanke would signal a QE taper (which he did, and bond yields popped). The eurodollar had seen a massive run-up from 1.2838 to 1.3412. Recently, the serge from 1.33 to 1.34 was labeled as the market pricing in the possible taper, but was the massive decline after the FOMC minutes foreseen? Did the market players fool you into believing this was a spectacular bullish movement heading to 1.35 or even 1.37? Most likely. Here’s my thought process:

The eurodollar is notorious for large speculative moves gearing up for big economic data only to sink like a cement cinderblock tossed into a lake. I like to contribute this to institutional traders phishing for retail bids and clearing out the market in a particular direction. The commitment of traders posted by the Chicago Board of Trade (CBOT) indicated a reduction of short positions which were cut by 85 percent last week. This is very key because now the “market” is positioning themselves for move upward movement; however, I tend to be contrarian by nature. I seen this as knocking out the short-selling and stop-orders.

There was also multiple attempts to surpass the 1.3412 level. With shorts  executed at 1.341, I felt confident in my decision.

4H Chart of EURUSD

4H Chart of EURUSD

Due to the failure to move up, I believe there is only one direction as strength in the U.S. dollar increases: down. When looking at the EURUSD daily chart, I can see key support at 1.315. Pullbacks should be taken into account for position add-ons.

1D Chart of EURUSD

1D Chart of EURUSD