ECU10

On Wednesday the Euro popped up out of its seven-day trading range and will become very bullish if it reaches a "D" target of 1.2971.  If the US dollar heads lower, perhaps in response to non-farm payrolls data, the Euro will go the other way, toward a midpoint pivot at 1.2873 and, if higher, toward a cluster of prior highs dating from mid-August.  These prior levels will be surpassed before the sibling "D" target of 1.2971 is reached, a pivot which is truly in the middle of nowhere and could offer a fine scalping opportunity on the short side.  Another level of importance is the Lindsay point of a daily pattern, just above the 1.2873 midpoint.  This not-yet-active pattern was covered in our Euro tout of September 1.  (Posted by Doug McLagan)

Hidden Pivot analysis gives us key levels to watch on either side of the Euro's eight-day trading range.  On Monday the futures made a low ten pips above the midpoint of a small, bearish pattern on the daily chart.  That midpoint, at 1.2613, remains tradeable with a tight stop.  A print five pips below it would signal further downside to 1.2445.  But if the Euro were to move up and out of its current range, it would cancel the bearish pattern and, by touching 1.2881, confirm a much larger bullish pattern aiming as high as 1.3763.  (Posted by Doug McLagan) ______ UPDATE (2:30 p.m. EDT):  The 1.2613 midpoint is no longer tradeable, as the pattern was broken by today's rally.  1.2881 was not reached, but the Euro impulsed up on the hourly chart.

The Euro will encounter overhead resistance in the $1.31 area due to a Hidden Pivot and a prominent prior high which are close together.  Beginning in late November of 2009, the Euro trended down for at least six months, losing more than 21% of its U.S. dollar value.  But since its June 7 low of just under $1.19, the Euro has been in an important uptrend.  If it can trade through a Hidden Pivot at 1.3092 and past an eye-catching prior high at 1.3101, the June 7 low will start to look like a major trend change.  On the other hand, the "D" target of 1.3092 might be the ideal place for Euro bears to front-run other like-minded traders focused on the prior high just above it.  (Posted by Doug McLagan)

A tout sent out Thursday night caught the high of the day within four ticks, allowing bears to get short ahead of the selloff that ensued. If you followed my advice to-the-letter, a two-contract position would have been stopped out on Friday for a theoretical gain of  $1,350.  However, if you initiated the position on four contracts and continue to hold one for a possible home-run as was suggested, use a 1.2686 stop-loss for now. A trailing stop of at least 35 ticks should be substituted if the futures touch 1.2545 to the downside. _______ UPDATE (July 13, 12:19 a.m.):  You're on your own now, but I'll suggest tying the remaining short contract to a stop-loss triggered by the creation of a bullish impulse leg on the hourly chart. At the moment,  that would imply a rally touching 1.2652, a tick above a distribution shelf created by last Friday's price action.  This is shown in the accompanying chart.

A rally target at 1.2721 that has been coming for a month lies within easy distance of yesterday's highs, and you can short it with a stop-loss as tight as 7-8 ticks. I've used a one-off point 'A' to calculate 'D', but the lowest possible 'A' (at 1.1884) would yield an alternative target at 1.2750.  That's a more conservative place to go short, but the risk is that the futures won't quite get there. ______ UPDATE: A stop-loss as tight as five ticks would have gotten one profitably aboard, since the futures fell 37 ticks after topping in the late afternoon at 1.2725. Cover half the position at will if you shorted more than one contract; otherwise use a 1.2705 stop-loss, switching to a 12-tick trailing stop and a 1.2665 minimum objective if and when 1.2671 is touched. If you shorted four contracts or more, hold onto at least 25% of the original position for a possible home run. You'll be on your own as far as managing the risk, but I'd suggest using the impulse-leg rule to warn of a bullish turn. Officially, we are still short a single contract whose basis has effectively been raised to 1.2782 by the closing purchase of a second contract at 1.269.  FURTHER UPDATE (12:10 p.m. EDT):  The futures fell to 1.2662 before getting any kind of bounce, implying a minimum theoretical gain of $600 if you followed my advice to-the-letter on a single-contract trade.  Officially, we logged a theoretical gain of  $1350 on the two-contract position. If you are still holding a contract for a possible home run, use a 1.2686 stop-loss for now and let 'er ride.

Hysterical short-covering in the euro yesterday is said to have been the cause of yesterday's plunge in commodities, including gold and silver, and the drubbing of the dollar.  The jury is still out on the rally's staying power, however, since it failed to generate a bullish impulse leg on the daily chart (see inset).  That could change as early as today with a push touching 1.2685 -- about 1% above yesterday's high.