The Euro's bounce has put the drooping head and shoulders pattern I wrote about a week ago in play. In that post I'd guessed that the Euro would make its low south of 1.41 and the Dollar would make its high north of 76. The actual numbers were 1.4047 and 76.19 respectively. I don't actually listen to myself though, because even I don't expect to be that accurate.
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| EUR/USD Hourly |
Since guessing games are fun, let's do it again for the Euro's bounce. We have a confluence of targets in the 1.433 to 1.439 area, which includes the 38% fib retracement at 1.4388, an old broken trendline just below it, the channel boundary, and a hypothetical channel between the shoulders for a symettrical drooping pattern. Markets seem to love revisiting old trendlines for one last kiss goodbye and head and shoulders patterns need not be perfectly symmetrical.
The minimum retrace I'd like to see is at the a of 2 high at 1.433, which would confirm the expanded flat wave 2 count. I'm going to make a ballpark call in the 1.436 area, and I hope we get there by the end of the week. Weekends are great times to release bad news, so maybe we hear something about Greece over the weekend.
The dollar index looks similar but inverted for obvious reasons.
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| Dollar Index Hourly |
And a note on why I buy the Dollar Index if what I'm really interested in is the Euro's weakness. Basically, it's all about the contract specifications and leverage.
| Margin | Size | Current Value | Leverage | |
| Dollar Index | 1591 | $1000 * Dollar Index | $75,600 | 2.10% |
| 2 * eMicro Euro | 1512 | 25,000 Euros | $35,590 | 4.20% |
| eMicro Euro | 756 | 12,500 Euros | $17,795 | 4.20% |
Furthermore, because the Euro has a 57% weight in the Dollar Index currency basket, I'm selling $43,092 worth of Euros, or 30,270 Euros at current exchange rates, with each contract. That's more Euros than with two eMicro contracts, which has a roughly equivalent margin requirement to one Dollar Index contract. Those numbers only apply to my futures broker. I understand that 50:1 leverage at FX brokers is pretty common, so if I ever make enough money to start yet another account I'll probably try and find one of those.
But with the greater exposure to the Euro, as long as there isn't some crazy movement against the dollar by the other currencies in the basket, I'll be doing better. And any movement in my favor is just icing on the cake. Of the other currencies in the basket, I'm bearish of the CAD because it's a commodity currency, and bearish of the GBP because of European debt exposure. The CHF and JPY are both ZIRP funding currencies and/or flights to safety, much like the Dollar itself, so I'm not expecting any strong movement either way with them, barring another intervention against the Yen in my favor.