03-29-2020: June Euro Currency: Rallies Mostly on Lack of U.S. Fiscal Restraint

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors

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In all commodity currency contracts, what is happening withi the U.S. Dollar is almost as important as what is happening in the country involved in an exchange rate, because commodity contracts in the U.S. for currencies are denominated in U.S. Dollars. With the recent $2.2 trillion stimulus package passed by our government willing to push onto future generations a huge debt load in order to do a "quick fix" and save the nation's economy from falling apart, the U.S. versus Europe looks less attractive. European leaders are having difficultyi agreeing on any kind of a fiscal stimulus package as the European Central Bank has been overworked in that area and cannot carry the entire burden of a virus effect fix. These effects on exchange rates may be temporary, as underlying problems with Spain, Italy, and Greece affecting the Euro and Germany's reluctance to get further involved are beginning to increase cracks in the European Common Union. The British Pound's recent surge also seems to testify to the wisdom of Brexit in "getting out" of the mess, although delays in transition would benefit all parties. While opinions of the Euro are divided, especially because of the Euro's recent significant rally off an oversold bottom, but the majority seems to think Dollar/Euro parity is inevitable at some point in say, about a year.

We disagree with most of the currency and bank analysts out there. Technical indicators support a recent Euro rally and there are some analysts to be found looking for 1.20 Dollars to the Euro by the end of this year, perhaps due to lack oif fiscal restraint on the part of the U.S. Government's "quick fix" to the virus problem. If the trend is reallyi your friend, then the current trend for the Euro is up at least short-term and currency swings overall througyh history tend to stay in place foir long periods of time.

Intermarket Analysis

We fed Kansas wheat, Chicago wheat, and soybeans into a neural network to get the following result:

Parabolic Chart

June Euro Currency:

Parabolic Chart

Nirvana Chart

June Euro Currency:

Initial Chart

News Analysis

Most analysts hold a bearish view regarding the Euro as it is short-term overbought and the U.S. Dollar is expected to recover. Some are even looking for Euro to U.S. Dollar parity. Parity is anticipated by mid-year. Bank of America Global Research is one agency downgrading forecoastes for the Euro. They point to "familiar self-interests sabotagbe" to the European response to the coronavirus crisis. They think the U.S. Dollar has made a "savege run" against all other currency counterparts this year. They anticipate the Coillar run to continue throughout 2020 before any European growth recovery and uncertaionties about the outcome of the November U.S. presidential electioin would after mid-year undermine the greenback and lift the Euro.

The downside risk for the Euro existed before the coronavirus outbreak and now are expected to drive double-digit falls in the European GDP over the first and second quareters. Thios will lead to large increases in spending and debt-to-gdp there. But the coronavirus situation is so rare as to allow that incorporation of it by anybody into any forecast or expectation would be statistically foolish. The inabilitiy of Eurozone authorities to agree on a strong fiscal stimulus compared to decisive action in the U.S. and U.K. and concerns about Italyi's solvency contributes to Euro weakness. A global economic slump that torpedoes risk asset valuations and stokes significant demand for liquidity would favor the U.S. Dollar over the Euro ion most circumstances. The absence of Euroopean political institutions from myriad initiatives to support companies and households throough unprecedented economic stopopage underway on the continent and elsewere is a burden for the Euro.

A recent imposition of their "stability and growth pact" would help but was recently suspended to prevent it from hampering efforts aimed at getting citizens and economices through the crisis. The crisis in Italy rekindled fears about a breakup of that single currency. Goldman Sachs thinks the Euro area could be in a strong position if the Euro zone decided to view itself as an economic nation state. But the European Central Bank has been long constrained in its ability to aid the economy after a decade as acting as the sole lifeboat of the common currency bloc. It has spared no effort to mitigate the effects of the coronavirus crisis. But it has come to the realization that central banks cannot do all of the heavy lifting involved in economic policy. So far EU leaders have not put anything meaningful on the table for cooredinated effort between government and the central bank. There has been talk of issuing "corona bonds."

The world is clearly headed for global recession, and the U.S. ecooomy seems best able to outperform in many areas. Bank of America says "The ECB has announced more QE, but this is not what is driving the Euro. EU fiscal rules have necessitated a decade of difficult decisions and sacrifices by governments to reduce debt burdens to a level that does not imperil the single currency. Same "self interest" patterns prevented European national leaders from endorsing "corona bonds." Spaniards, Greeks, and Italians are likely to reject reimposition of any "growth and stability pact."

However, focus should also be on the large size of the U.S. Federal Reserve balance sheet expansion and a huge increase in the U.S. national debt. President Trump, perhaps foolishly and politically, signed a $2.2 trillion coronavirus aid bill into law. Recently the British Pound has made "whopping" recovery against both the Euro and the U.S. Dollar. Some say that the Pound is not highly aligned to the ups and downs of investor sentiment as world stock markets make volatile ups and downs. The UK has a huge financial sector where issues related to Brexit and the future of that sector have been more or less resolved. Much of the recent Pound rally may be due to views the Pound was recently very oversold. An extension of the Brexit transition phase to unblock borders would be welcomed to strengthen the Pound. The U.K.'s economic aid package related to the virus is considered a "model" for the rest of the world.

Some say the Dollar vs. Euro's key downside driver is the Fed's open-ended QE program announced last week. A second factor boosting stocks and taking its toll on America's currency is the $2.2 trilliion bill. A reason to sell the U.S. Dollar against the Euro would be the huge increase in unemployment numbers in the U.S. But countering all of this are things like Germany's opposition to issuing common bonds as part of a unified economic response. Any delay in that will weigh on the Euro.

Keep in mind pressure on U.S. oil companies which is also pressuring the U.S. Dollar exchange rate. Also very low interest rates in the U.S. pressure the Dollar. Since the Euro Currency contract is denominated in U.S. Dollars, this is a major factor propelling the Euro higher in the futures market. Among market manipulations in the U.S. is increased chances for hostile takeovers of struggling corporations. Unfreezing of credit markets in the U.S. is a factor to consider and repatriation of currencies to their home markets could be a strengthener for the Euro. World risk appetite has been increasing just recently, but may fall back to searches for safe havens which would not support the Euro.

European bonds await a next supply wave amid fiscal-shock anxiety. Most news which we read seems to be negative for the Euro longer-term.

Point & Figure Chart

136.0|                                                                  T  3/26
     | CME - Jun-20 Euro Currency   (125K eu c/eu) Cm.=0.01  Lim.= 0.2
     |                             X X
     |                             XOXO
     |                             XOXOX
     |                             XOXOXO
     |                             XOXOXO
     |                             X  O O
     |                       X X   X    O
     |                       XOXO  X    O
     |                       XOXO  X    O
     |                     XOX  OX X    O
     |                     XOX  OXOX    O
     |                     XOX  OXOX    O
     |                     XO   OXO     O
     | X X X               X    OX      OX
     | XOXOX               X    O       OXO
     |OXOXOX   X           X            OXO  X
     |OXOXOX   XO          X            OXOX XO  X
     |O   OX X XOXO        X            O OXOXOXOXO
     |    OX XOXOXO        X              O O OXOXO
     |    OX XOXOXO        X                  OXO O
     |    OXO OXOXO        X                  OX  O
     |          OXO        X                  OX  OX
     |          OXO        X                  O   OXOX
     |          O O        X                      OXOXOX
     |            O        X                      O OXOXO
     |            OXO    XOX                        O O OX
     |            OXO  X XOX                            OXO
     |            OXO  XOXOX                            OXOX
     |            OXO  XOXOX                            O OXO
     |            O OXOXOXO                               OXO
     |              OXOXO                                 O OX
     |              OXOX                                    OXO    X
     |              O OX                                    OXO    XO
     |                                                        OXOX XO
     |                                                        OXOXOXO
     |                                                        OXOXOXO
     |                                                        O O OXO
     |                                                            OXO
     |                                                            OXOX
     |                                                            OXOX
     |                                                            OXOX
     |                                                              OX
     |                                                              OX
     |                                                              O
                 11111           111               111         111
The above chart is giving a conventional sell signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical high and a weak seasonal down period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Gotthelf". It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Gotthelf" for Euro Currency (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system has triggered a signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $1,250. Initial margin on a single contract is $2,145. Use of options is advised.

Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories may vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to up is imminent near a volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Euro Currency December 1.095 Put and Sell (1) Euro Currency September 1.130 Put @ 0.0146 to the sell side or greater.

o 1 o 2 o 5

Calendar Spread

What the Jan. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go flat in the long run. The best time to enter or leave the above spread is when it is at -0.56 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -1.10 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the sell the near, buy the far point, which disagrees with our ultimate anallysis.

Level Table:

Level Table

The path of least resistance is down.

To view the chart below correctly use Microsoft Internet Explorer.

118.0|                                                                  R  3/26
 CME - Jun-20 Euro Currency   (125K eu c/eu) Cm.=0.01  Lim.= 0.2
110.5|WWYZZ[   <<<
107.5|ZZZZ_____________________________________________________________________     |ZZZ
106.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.136
                                 1 1 1 1 1 1 1                        
       3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 0 1 1 2 2 1 1 2 2 3 3           3
       2 1 2 1 2 1 2 0 2 0 2 0 1 0 1 3 1 2 1 2 1 2 1 2 1 2           2
       9 1 6 0 4 0 4 9 3 6 0 4 8 2 6 0 3 7 2 7 3 8 1 6 1 5           6

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 3/27 ).

Intraday Chart

                 Risk Versus Opportunity Report

                   EUM0    June Euro Currency

                      High Price:  1.184
                   Current Price:  1.116
                       Low Price:  1.082

                            Risk:  0.060
                     Opportunity:  0.120

                    (O/R) Ratio =  2.000

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart - 1
News - 1
Point & Figure - 1
Cyclicals + 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System + 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility + 1
Level Table - 1
Other Factors + 1
Total + 2
Place 6 June Euro Currency on a Buy Watch with stoploss @ 0.98 below the get-in point when recent price is represented as "151.52".