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Wednesday’s ETF Chart To Watch: Rydex CurrencyShares Euro Currency Trust (FXE)

November 16th, 2011

Stoyan Bojinov: Equity markets finished in green territory on Tuesday as investors overseas rejoiced over optimistic-speculations that the new Italian Minister, Mario Monti, would bring order and ensure stability in the debt burdened nation. Investors had a reason to smile on the home front as well, after U.S. retail sales came in at 0.5%, surpassing analyst expectations of 0.3% growth. Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said the economy will rebound “faster than people think”. Crude oil prices surged on the day, settling just beneath the $100 level as the trading session drew to a close. Gold’s performance was rather mixed as the precious metal worked to regain much of the ground lost in overnight trading, settling near $1,780 an ounce for the day.

The Euro zone Consumer Price Index is slated to come out later this morning before Wall Street opens, which makes the CurrencyShares Euro Currency Trust (NYSEARCA:FXE) our ETF to watch for today. Analysts are expecting for inflation in the debt stricken currency bloc to come in at 1.6%, unchanged from the previous reading [see Three Long/Short Ideas For Euro Zone Debt Drama].

Chart Analysis

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FXE has fallen victim to unprecedented volatility over the last few months as the Euro zone debt crisis has taken center stage [also see Low Volatility ETFdb Portfolio ]. The fund hit a recent low of $131.19 a share on 10/4/2011, and went onto to gain close to 10% in less than one months time, only to encounter resistance at the 200-day moving average (yellow line) and tumble back to $135 a share [see FXE Technicals]. It’s worth nothing that although FXE held support above its 200-day moving average for two days in a row, the fundamental factors weighting down on the euro in the currency markets proved far too great to ignore.

Click to Enlarge

FXE is in a tricky spot at the moment from a technical perspective since the fund is re-testing support around $134 a share, and if it fails to hold its head above this level by the end of the week, it’s very probable it may encounter further weakness and decline back down to the $132 level [see Surprising ETF Standouts Of 2011].

Outlook

If inflation in the Euro zone comes in higher than analyst expectations, investors may interpret it as a positive sign that the economic recovery in the region is still showing signs of life. Likewise, a rally in the currency markets for the euro can help pave the way higher for FXE, potentially sending it back near $138 a share, at which point we would advise short-term traders to lock-in profits seeing as how this price level is an area of resistance. On the other hand, if the latest CPI data paints a gloomy picture for the currency bloc, selling pressure could bring down FXE to $132 a share [see PIMCO Debuts Germany, Canada, Bond ETFs]. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

Written By Stoyan Bojinov From ETF Database Disclosure: No Positions

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