2 Euro Dollar Post-Shutdown Trades

10/18/2013 9:00 am EST

Focus: CURRENCIES

High to low in the last 24 hours the euro dollar has advanced nearly two cents lifting futures to levels not seen since the first week of February, notes Matthew Bradbard of RCM Asset Management.

The 34-day EMA held  as seen on the chart below (orange line). This reversal of fortune coincided with a resolution and the debt crises averted or at least delayed for now. The dollar (UUP) is challenging recent lows with all other crosses well bid. Aggressive traders can look to fade this rally in the euro dollar (FXE), as well as other crosses that are overreacting in my eyes. This last-minute deal to avert the US debt default turned a number of markets around including the debt complex, metals markets, FX markets and stock market. Lawmakers in the eleventh hour eliminated the default risk temporarily by expanding the nation's borrowing limit. It is like giving a drug addict more crack.it makes no sense. As opposed to weaning the addict off the very cause of the problem, let's give em' more?

Risk is back on as investors believe a crisis has been averted but as we kick the can down the road, the problem only gets worse. Before I digress let's get back to the euro dollar. Looking at the weekly chart, we appear to have a pivot point just above current trade at the $137 level dating back four years. If we fail to take out these levels in the next few sessions, I would expect to see some back and fill into the coming weeks. A trade back to the MA's as seen on the weekly chart below drags December futures back near $132/133.

chart
Click to Enlarge

Trade Ideas
Short December futures with stops just above February highs. From current levels that would be approximately $625 per futures.

Bear put spread, buying a $136/133 December put spread. Total cost in premium should be just under $1,000 per. This is a three-cent or $3,750 spread. Ultimately in the next three-four weeks, my target is a trade to $133 that is why I chose it as my bottom leg.

By Matthew Bradbard of RCM Asset Management

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