Buying the Euro (FXE)

Today we added to the EUR/USD via the etf FXE to our Real-Time Alerts on the long side. We view the cross trading oversold, and for good reason – nearly every polled economist according to Bloomberg thinks the ECB will issue some sort of easing program when it next meets on June 5th. This positioning is grounded in ECB President Mario Draghi’s shift in tone in the last meeting (on 5/8), suggesting the bank would act to address the low inflation and strong EUR/USD.  

 

Since that meeting, sentiment from policy makers towards action has only increased the speculation about the Bank’s willingness to issue both conventional and unconventional measures to counter low inflation and a strong common currency. What’s on the table?

 

  • Cutting the main interest rate (currently at 0.25%)
  • Cutting the deposit rate to negative (currently at 0.00%)
  • Issuing a new QE program

 

While it’s unclear if Draghi will in fact act and by which means (tools), our positioning is informed by the US Dollar Index trading below its long term TAIL line of resistance at $81.17 (currently at $80.39) according to our quantitative model. We’re buying these oversold levels ahead of the meeting, and note that despite such overwhelming sentiment that Draghi will act, he has shown time and again over recent years to hint, but ultimately keep policy tools in his back pocket until conditions worsen, and/or he believes he’s incapable of influence simply through rhetoric.  

 

After all, Draghi was successful in talking down the EUR/USD since his last meeting, when the cross was pushing $1.39.  His other challenge, the inflation rate, which currently stands at 0.7% in April Y/Y, will be much more challenging to influence rhetorically. 

 

Below we outline our quantitative levels for the EUR/USD. We’re keying off the TAIL line of $1.35. If price holds above this level (and the US Dollar remains broken on the TAIL duration), we’ll remain bullish. If the cross breaks this level (and the US Dollar overcomes its TAIL resistance level), look out below!

 

Enjoy your long weekend!

 

Buying the Euro (FXE) - zz. eurro

 

Matthew Hedrick

Associate


Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more