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

by on October 4, 2012 | ETFs Mentioned:

Markets closed in green territory as bullish pressures faced little headwinds thanks to upbeat economic data at home. The latest ISM non-manufacturing report came in above expectations and helped restore some confidence back in the seemingly stagnant recovery at home; this service industry indicator came in at 55.1 for September, topping the previous reading of 53.7. All in all, trading activity was fairly tame on Wall Street as many traders are sitting on the sidelines looking ahead to this Friday’s U.S. employment report [see Free Report: 7 Simple & Cheap All-ETF Model Portfolios].

With no major economic data releases at home today, investors will turn their attention overseas where the European Central Bank is expected to deliver its latest interest rate decision. As such, our ETF to watch is the Rydex CurrencyShares Euro Currency Trust (FXE, B), which may be in for a wild day depending on the markets’ reaction to the latest economic commentary issued by policymakers regarding the currency bloc’s outlook [see also How To Play $10,000 Gold].

Chart Analysis

The euro will come under pressure later today as the ECB issues its latest economic outlook following the interest rate decision itself. Seeing as rates are expected to remain unchanged at 0.75%, investors will look for fundamental guidance to restore their confidence in the fragile region. The recent passage of the European Stability Mechanism served as a major catalyst that helped propelled FXE back above its 200-day moving average (yellow line) and, as such, investors will expect nothing less than the full pledged support of policymakers [see also ETF Technical Trading FAQ].

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FXE is currently sitting on a “sweet spot” as buying and selling pressures have cooled off right around the fund’s 200-day moving average. Current prices may offer an attractive entry point for bullish traders, although setting a tight stop-loss around $127 a share is recommended [see also 3 ETF Trading Tips You Are Missing].

Outlook

Bullish pressures will likely emerge if the latest ECB commentary paints an optimistic outlook for the region; in terms of upside, FXE has major resistance at $131 a share. On the other hand, looming concerns overseas could tip sentiment towards the bear camp; in terms of downside, this ETF has immediate support at the $127.50 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.