Thursday, May 30, 2013

A tale of two currencies against the US dollar

The charts above cover the same time period, are both 4 hr charts and have been arranged so that the scale of exchange rate from top to bottom is the same in both cases. The height of each chart represents 9.04% of the value of its subject pair.

Technical analysis

We have chosen things to be this way to make the comparison between the behavior of the Euro against the US dollar and the Aussie dollar against the US dollar meaningful.

This analysis is concerned with current price action of each at any instant, as opposed to an historic comparison of the charts.

As can be seen, EURUSD is mostly flat, with a very Euro positive upward turn on the GMT afternoon of May 30th, to correspond to the rather disappointing US jobless claims released to coincide with the last bar in each chart. The Aussie, on the other hand, shows a remorseless downward trend, which is further illuminated by the 200 period SMA, which is the red line in each chart (just visible at the top right in AUDUSD).

Our friends in Dow Jones Newswire tell us that the spike referred to is a consequence of an unfortunate bout of short squeezing that has occurred in EURUSD:

Before volatility in the Nikkei last week triggered a drop in the dollar, traders had been building up bets that the greenback's rally presented an opportunity to finally go short the euro. Latest weekly CFTC data showed net short euro positions jumped 73% as of May 21. Those positions are getting squeezed now (with this morning's disappointing jobless claims report providing the latest squeeze), pushing the euro back above $1.30 for the first time since May 14. Euro trading at $1.3022 from $1.2940 late Wednesday, according to EBS via CQG. (; @mbwalter4)

Is it significant that nothing similar seems to have happened to the Aussie? After all, there must be at least the same volume of short sellers, relative to the size of the market for each, in the AUDUSD pair.

The fundamentals of the Aussie, and the position of the Omicron Forex Algorithmic routine, are revealed in a previous recent post, which can be accessed here.

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