\*All rights reserved! Redistribution of this publication is strictly prohibited. There is substantial risk of loss in trading futures and options.


*All rights reserved! Redistribution of this publication is strictly prohibited.

There is substantial risk of loss in trading futures and options.

Past performance is not indicative of future results

On the radar:

* The euro has dipped sharply ahead of EU meetings involving the fate of Greece, but the odds are STILL in favor of a rebound.

Monthly Euro May 2015 Off the Charts

If you missed last weeks edition of the DeCarley Perspective regarding the euro, click here to review. Here is a continuation of our thoughts...

Narrowing in on the daily chart

In the “big picture” we believe the odds are in favor of a substantial 2015 euro rally. However, as we all know, markets don’t travel in a single direction and bottoms are a process rather than an event. Thus, although we believe the euro is in the process of a long-term trend-change, we could be in store for further consolidation in the short-term. Nevertheless, even if we see sideways to moderately lower prices in the euro from here, we believe the path of least resistance going into the second half of the year will be higher.

We see support on a daily euro chart at $1.08 as represented by the extension of a former resistance line. In our opinion, the odds are in favor of this level holding. However, if we are wrong and the euro slips further, a trip to $1.06 could be seen. In addition, although not likely, we can’t completely rule out a full retest of the March mid-$1.04s low. Should the $1.04 level be seen again, we believe it would be a “screaming buy”; additionally, only a break below $1.04 would put the bears back into complete control.

If $1.08 holds as expected, the bulls will need to see a break above $1.15 to get the momentum needed to make a legitimate run. There will be resistance near $1.19 on the way up, but a break above this level could lead to a quick run into the $1.30s.

Daily Euro May 2015 Revised

Speculators remain complacently short the Euro

Throughout the recent recovery in the euro from the mid-$1.04 area to the mid-$1.14s, both small and large speculators remained net short. In fact, according to the Commodity Futures Trading Commission’s (CFTC) Commitments of Traders Report, large speculators (those with deep pockets and assumed to be sophisticated) had only covered roughly 25% of their bearish position near last week’s peak. Specifically, this group of well financed speculators reduced their net short holdings to about 168,000 contracts, from 226,000. This leaves the door open for quite a bit more short covering in the weeks and months ahead, should they decide to unwind the remaining contracts.

Habitual Patterns in the Euro

The euro has a long history of over-crowded trades in both bull and bear markets. Further, we have never seen such as large one sided position in euro futures. At the trough set in March the COT’s large speculator group was as short as it had ever been, at about 226,000 contracts. Additionally, this is over double the largest net long position ever held by large speculators, which was roughly 96,000 contracts. Simply put, speculators have never had more cards on the table than they do now. If luck isn’t on their side, we could see a repeat of the 2008, 2010, and even the 2012 bottom in which short speculators were painfully squeezed out of bearish trades.

Large speculators have almost always reduced, and eventually reversed, their net position in quick fashion once the unwinding of an over-crowded trade commenced. If we get a repeat of the norm, the euro rally could merely be in its infancy.


In a nutshell, it hasn’t paid off to focus on fundamentals while ignoring the chart and the implications of an over-crowded trade. The Euro-zone fundamentals might seem dismal, but we’ve been here before and the outcome didn’t resemble the expectations of the majority.

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Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.

Seasonality is already factored into current prices, any references to such does not indicate future market action.

There is substantial risk of loss in trading futures and options.

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