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ED1! trade ideas

Where is the Euro Headed?Despite unprecedented rate hikes up to 450 basis points over the last 12 months the Euro has lost ground to the US Dollar for the last nine straight weeks. As a result, the Eurozone interest rates are historical highs. Currencies desire nothing more than higher rates. The Euro should have popped but instead it flopped after the ECB’s rate hiking decision last Thursday. That says something about the underlying economy and the expectations for interest rates ahead. This note puts forth data backed arguments that macroeconomic fundamentals in Europe is visibly weak. In sharp contrast, the robust economic fundamentals in the US provide strong tailwinds to the US dollar. Consequently, the Fed has great monetary manoeuvring space which will impose bearish pressure on the Euro. Having cranked up rates to a peak unseen before, the ECB’s hands are tied with little room for further hikes despite its hawkish tone. This paper posits a short position in CME Micro EUR/USD Futures expiring in Dec 2023. To seize opportunity from a weakening Euro, a short position with an entry at 1.071 combined with a target at 1.035 and hedged by a stop at 1.1025 will deliver an expected reward-to-risk ratio of 1.14x. MONETARY POLICY TRANSMISSION TAKES TIME Over the last year, the ECB has increased interest rates, an unprecedented ten times to combat surging inflation. That is a full 450 basis points. Yet inflation remains sticky and persistent. Why? One obvious reason is monetary policy transmission. Monetary policy transmission is the process through which a Central Bank’s monetary decisions impact the economy and the price levels. The mechanism is characterised by long, variable, and indefinite time lags. As a result, it is difficult to predict the precise timing of monetary policy actions on economy and inflation. DATAPOINTS SIGNAL WEAKENING ECONOMY Selected data from the minutes of the Monetary Policy Meeting of ECB Governing Council held in July points to growing weakness in Europe. 1. Yield Curve Inversion Deepening: Together with negative euro area data, the inversion has reignited recession concerns. For now, the Euro area’s equity & credit markets remain resilient, hoping for a soft landing. 2. Sharp Contraction in Euro Area: Euro Area Composite PMI has been declining since April 2023 and in July it has fallen below 50. The dynamics are consistent with a weak GDP performance for the second and third quarters of the year. Housing and business investments are estimated to have declined. 3. Shrinking Demand for Loans: The latest bank lending survey signals further tightening of credit standards and sharp drop in loan demand in Q2 across businesses and households. The reported demand for loans among corporations had fallen to an all-time low since the start of the survey in 2003 and, for the first time, was lower than at the height of the global financial crisis. 4. Growth could stall due to over correction: Growth could slow far more sharply if effects of monetary policy were more forceful than expected, or if the world economy weakens dampening demand for euro area exports. AFTER UNPRECEDENTED RATE HIKES, WHAT’S NEXT? As evident from weakening signals cited above, the ECBs hands are tied. ECB President Lagarde has little option other than maintaining a hawkish tone to manage expectations. When the ECB regroups again in December, the likelihood of rate hike is thin. Hawkish pause? Maybe. As Katie Martin writes in her weekly opinion piece for the Financial Times, “few truly believe the central bank really would raise rates further, especially while the region’s economy feels the strain from the tighter policy enacted so far and from the impact of weaker Chinese demand on German manufacturing.” ECB’s euro area growth forecasts are on the decline. The central bank expects 0.7% growth for this year (down from 0.9% as previously estimated). For 2024, the ECB now forecasts 1% growth (compared to 1.5% growth projected previously). Forecasting the future is hard. It is evident from a survey of economists (see chart below) conducted by Bloomberg earlier this month. The market expectations are for rates to stay flat at 4% for now with rate reductions from Q2 next year. When these expectations become consensus, Euro weakening will accelerate. DOLLAR CONTINUED STRENGTH AGAINST THE EURO The Euro has shed more than 5% against the greenback since mid-July. Shaky fundamentals and an elevated risk of recession have raised questions on ECB’s ability to continue hiking. Contrast this against the conditions in the US. The US economy has been marvellously resilient and set to have one of its best years yet. This backdrop emboldens the US Fed to take on an aggressive monetary posture. TRADE SET UP Interest rates at record elevated levels combined with weakening economy and feeble prospects, collectively pushes recession risks higher in the eurozone. This will corner the ECB into a pause or even cause it to hint at rate cuts during the December meeting. As a result, the Euro will be pressured lower against the US dollar. To ride on the opportunities from a weakening Euro, this paper posits a hypothetical short position in CME Micro EUR/USD Futures expiring in Dec 2023 (M6EZ2023) with an entry at 1.071 combined with a target at 1.035 and hedged by a stop at 1.1025, delivering an expected reward-to-risk ratio of 1.14x. Each lot of CME Micro Euro Futures contract provides exposure to 12,500 Euros. It is quoted in USD per Euro increment. Each pip i.e., 0.0001 per Euro delivers a P&L of USD 1.25. • Entry: 1.071 • Target: 1.035 • Stop: 1.1025 • Profit at Target (hypothetical): USD 450 ( = 0.036; 360 pips; 360 x 1.25 = 450) • Loss at Stop (hypothetical): USD 393.75 ( = -0.0315; -315 pips; -315 x 1.25 = -393.75) • Reward-to-Risk (hypothetical): 1.14x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Editors' picks
CME_MINI:M6E1!Short
by mintdotfinance
8
$6E1! futures gap up, bullish for EURUSDVery brief follow up with the EURUSD short term bull case I was building last week, and finally put on a trade on Friday before close, both the Euro FX futures CME:6E1! gapped up, and the MOEX:DX1! futures gapped down. If this follows through, that bodes well for my AMEX:FXE calls. I will add, the options market in AMEX:FXE are not very liquid. You will find yourself buying on the ask and likely selling on the bid. I tried to get an inbetween the market fill and it just wasn't happening. But, if the move is big enough through the next couple weeks, hopefully the profit still turns out fairly tidy. Futures open on a Sunday are not exactly something you can count on for the general direction, sometimes not even for the next day, but hey, it looks good for my trade at the moment, I'll take it. We'll see what tomorrow holds and hopefully the next ~2 or so weeks.
CME:6E1!
by dieseldub
Why the EURUSD might trade higherFollowing Powell's statement at the annual Jackson Hole symposium – “We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” – markets seem more inclined towards expecting another rate hike in the US. This move, in our analysis, provides the Federal Reserve (the Fed) with added flexibility for future decisions. Meanwhile, the European Central Bank (ECB) echoes a similar sentiment, insisting on remaining stringent as the battle against inflation is ongoing. A dive into headline & core inflation shows a decline in the former for both the EU and US. However, Europe's core inflation remains stubbornly high, without evident signs of decreasing. Further, Europe's robust PMI, in contrast to the sub-50 US print, paired with this sticky core inflation, indicates that the ECB might maintain its tight monetary stance to combat inflation. The Futures and OIS market can give us some insights on market participants’ expectation of the forward rate path. Here we see similar expectations of an increase in rates before cuts are priced in. Generally speaking, interest rate differential is inversely related to the EURUSD, hence in the chart above we see this relationship in play with the US-EU Interest Rate, roughly marking out the inverted EURUSD path. From 2019 to 2022, where we saw the rate differential held constant after a period of decrease, the EURUSD traded higher during that period. Hence whether the ECB tightens further or keep in line with market expectations, we see potential for the EURUSD to trade higher given historical precedence. The US dollar is currently hovering near the upper threshold of a descending channel. The previous 3-times when RSI reached such levels marked the turnaround point for the dollar. On a longer-term chart, we see the EURUSD trading right above the 1.08 level which has been a key support & resistance level going back to 1970s. Zooming in, the EURUSD pair now trades on the lower band of an ascending channel with RSI pointing oversold. Again, the past 3 times when RSI were at this level marked the reversal point for the EURUSD. Hence, whether the ECB reacts with more hikes as expected by market participants, or it stays the expected course, the EURUSD is likely to trade higher as we look back in history. Supported by technical, and the potential for a weaker dollar as it trades near resistance, we favour a long position in the EURUSD Futures at the current levels of 1.0827 with a stop loss at 1.05 and take profit at 1.130. Each 0.00005 increment per EUR in the EURUSD futures contract equals to 6.25$. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com www.cmegroup.com
CME:6E1!Long
by inspirante
Euro Futures 6E1 Finding Support?Looking a 4 hr line chart at some reoccuring retrace levels and time cycles we can see price is reaching the 70% retrace level of our last major uptrend. The question is will it be "retrace" and bounce or break the low of the last major swing signaling a reversal of the longer running macro uptrend. Looking at the log chart we can see the rate at which price is dropping is slowing signaling we may be finding support at a 70% retrace of the last swing. IF we are finding support a reasonable expecation would be to form a range of accumulation before seeing a push to up side. The current chart is pointing out squares of time and price from the down trend giving high probability price levels and time cycles of future trend. First major point of resistance is the 1.96 zone where we have the .236 retrace level of the entire down trend IF it is has bottomed, the 50% retrace level from the last high of the downtrend, the 45 degree mark from squaring the last down trend, and the 200 EMA on the 4hr. Just looking at the chart this zone could be an accumulation zone for a continuation of macro uptrend or if we are seeing a macro reversal it could also be seen as point of rejection and continuation of our current down trend. Current trading plan is to trade the current range from this hopeful low to local resistance. IF it brakes to the upside next local target would be the swing golden pocket. IF it brakes to the down side there is a small gap to fill down to the 1.081 area. Trade Well......
CME:6E1!
by Degen-Dynasty
volume analysisEURUSD is super clear up trend structure after many impulsive up wave price take a rest on corrective phase the problem is corrective phase have so many structure so we don't know support on 1.125 can hold the price or not now let talk about volume analysis on m30 chart if you check on 17 July 8:30 and 18 July 8:30 CT time (20:30 in Thailand time) you can see that very big volume happen their on red bar if you see footprint chart from order flow analysis platform like ATAS NINJA Jigsaw too bad Tradingview cannot see this data you will see big buy limit order see their that probably (not surely) big player absorb the selling from retail I know no one read this LOL I just note for myself to comeback and review my trade ^^
CME:6E1!Long
by tofinse
#6EU2023, Euro Trade Plan The appearance of naked puts in liquid areas on a rising trend is an excellent chance to start long positions. The option position created on July 14 is substantial enough to make an impact  and, most likely, continue the Euro's trend move. We do the best research as we can to find new opportunities in the massive amount of information every day to help you make data-driven trading decision. Please feel free to leave any comments you have and like this idea if you agree with us. Any feedback or comments will be read. We appreciate it all! Stay tuned!
CME:6EU2023
by ClashChartsTeam
EURUSD Futures (M6EU2023) ShortThe micro EURUSD is in a confirmed trend change from bullish to bearish. The DXY is Bullish. Price has retested the new bearish trend line establishing a new bearish trend, creating a bearish trend trade setup. It is an opportunity to enter early at a good price. Trade Ideas: Take the next 240 candle short on a sell stop at 1.0948. Stop at 1.0988 (above the wick on the engulfing candle to the left). Target at 1.0860 just above support. Set an alert at 1.0904 because of a small supply zone there. Trade will need close monitoring here. Use at your own risk because only you own your risk.
CME_MINI:M6EU2023Short
by MrPresident