Quick Note on Price Action: Close is Important

The euro reached its highest level in four weeks in Asia today, but how it closes the North American session may be more important.  

At the start of June, the euro and Swiss franc posted key outside up days following the poor US employment data.  We recognized it as such here and our confidence grew as follow through action materialized. Our weekly technical outlooks have indicated the upside correction, after the dramatic losses in May, was still underway.  

Today's price action could be a key downside reversal in the euro and Swiss franc.  Recall, this is when the price of an instrument makes a new, in this case, high, for the move, sells off, and closes below the previous day's low.

The level to be monitoring then is last Friday's low in the euro, which Bloomberg has at $1.2592.  The level  in the dollar against the Swiss franc is at last Friday's high, which Bloomberg has at CHF0.9538.  Many watch the Dollar Index as well.  

As an index, it tends to trend better than the individual components, but it is purely a speculative market, as it does not match any corporations exposure (for favorable accounting treatment); it reveals little about how the dollar is doing against its major trade partners (with two major trading partners not even included--China and Mexico--for example; and few, if any, real asset managers can use it as a hedge or a transactional vehicle.  The level to watch there is found at 81.93.  

The dollar is also may post a key outside up day against the Canadian dollar.  Friday's high was CAD1.0256 according to Bloomberg.  

We have argued that the technical tone in the fx market had diverged from fundamentals.  If key reversals are indeed recorded today, it suggest technicals are coming back into line with fundamentals. Euro positioning remains a caveat, but as we noted, in the currency futures the gross longs were larger than in any other the other currency futures, even though the net short position remains near historic extremes.