As Forrest typically writes the Daily commentary, and quite well I might add, today please consider me a guest host to my own column. As such, I want to write about a setup not quite ready, but one that should be kept on your radar.
The euro is 20-years old as of January this year. It is the official currency of 19 of the 27 members of the European Union. After the U.S. dollar, it’s the second largest and second most traded currency in the international markets. To date, the euro has been on a steady decline against the U.S. dollar. A big part of the reason is due to the war in Ukraine and economic sanctions on Russia, making a recession in Europe's largest economy more likely.
The eurozone is far more dependent than other areas on Russian energy. However, the euro today is mainly driven by sentiment around the Russia-Ukraine conflict.
Meanwhile, looking at the greenback, its position as the world's reserve currency is again under scrutiny after the freezing of Russia's central bank reserves earlier this month. Even though the asset freeze was done in concert with Europe, Canada, Britain, and Japan, some analysts believe this could be an inflection point for the US dollar.
Right now, the USD is being boosted by safe-haven demand, high inflation, and a hawkish Federal Reserve. Yet, another story emerged recently about China, Saudi Arabia, and the yuan.
Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan. People familiar with the matter say that it would dent the U.S. dollar’s dominance of the global petroleum market.
These talks have been off and on for years. There are more current fears that using China's yuan as an alternative currency is a move for China to avoid international sanctions.
Regardless, many other analysts say that there is unlikely to be any impact on foreign exchange markets in the short, and even medium, term, economic experts have said. Most oil is priced in dollars, and it would be, these analysts say, a long, complicated process to disengage from that.
Perhaps.
Meanwhile, there are many reasons the dollar could remain supreme given how energy prices continue to rise and the Russian-Ukraine crisis does not appear to be abating.
But what I have learned about investing and particularly technical analysis is that it very often precedes fundamentals. Charts tell us about the validity of contrarian viewpoints in advance.
Going back to 2017, Invesco CurrencyShares® Euro Currency Trust (NYSE:FXE) has had 3 strong bottoms within cents of one another. 2017's low was 100.46; the 2020 low was 100.64, and so far the 2022 low is 100.67.
The weekly chart shows that FXE has a lot of work to do. Nonetheless, we have a perfect and clear risk to the 2017 lows. We have the first level to clear at around 103.40. I would do a small starter position there. Then, if FXE clears 105 I would add more. Over 108, I would continue building the long position, raising the risk points accordingly.
Of course, if this turns out to be a good trade, profits should be taken along the way.
Yes, at this point, this is definitely contrarian. Nevertheless, 5-year triple bottom certainly has my attention.
ETF Summary
- S&P 500 (SPY) 440 support and through 446 more upside.
- Russell 2000 (IWM) 202 support and through 207 better; 210 next big resistance.
- Dow (DIA) 349 resistance, 339 support.
- NASDAQ (QQQ) Weakest index as the only one still below the 50 DMA 351.
- KRE (Regional Banks) 69.40 support needs to clear 74.
- SMH (Semiconductors) 271-273.50 resistance, 255 support.
- IYT (Transportation) Best sector as it should be above 265, yet into resistance around 270.
- IBB (Biotechnology) 129 key support.
- XRT (Retail) 80 key resistance.
- GLD (Gold) 175 to 183 range has to break.
- USO (Oil) 81.10 resistance and 72 support.
- DBA (Agriculture) Through 22.25 more upside with 22 support.