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"Always analyze a security in conjunction with others in its relative market."
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Eurodollar Heading For a Slump? |
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Friday, 05 October 2007 |
The Eurodollar is in a dangerous position right now for technical analysts. The Eurodollar is the interest rate of the Euro. Perhaps the current U.S. credit market crisis is actually on a global scale. Look at UBS, the main bank for Switzerland - it hit had its first losses in nine years today.
Taking a look at the chart below, it is clear that the supply is conquering the demand. This is shown by the falling Money Flow into the Eurodollar. As this is falling though, the price has not yet fallen. This is what appears to be scary for us analysts - negative divergence and imminent breakage in support. When the Money Flow Index was in the red, this symbolizes an overbought state, and hence, the downfall.
What we are looking for is either a break in support at 95.14 or a 4-day moving average crossover with the 19-day moving average. If any of these bullish indicators occur, sell immediately.
Just to prove our bullish suspected trend, we will show you a longer-term chart below. The ROC measures the speed of momentum through a calculation of the derivative of y with respect to x, or moving average to the previous moving averages. When this momentum begins to slow down, the ROC begins to fall. This is what we have seen for the past couple of months. Again, throughout all of this, we again see negative divergence.
Perhaps a few Put-options on the Eurodollar could be quite profitable. Stay tuned for more.
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