Optimism returned to the stock market after it was reported that several dozen Republicans are joining a bipartisan call to break the budget impasse in Congress. Despite the generally upbeat price action on Wall Street, shares of Apple managed to drag down the entire technology sector as the industry giant shed upwards of 7% on the day. While domestic headlines remain focused on the “fiscal cliff,” Chinese markets soared higher after policymakers overseas expressed their commitment to providing further government support for the economy [see 5 Important ETF Lessons In Pictures].
As the political gridlock heats up at home, many will turn their attention to the European Central Bank rate decision scheduled to take place before Wall Street’s opening bell. As such, our ETF to watch for the day is the Rydex CurrencyShares Euro Currency Trust (FXE, A), which may experience volatile trading at the open depending on investors’ reaction to the latest economic commentary issued by the ECB; analysts are expecting for the ECB to keep the benchmark rate unchanged at 0.75% [see King Dollar ETFdb Portfolio].
This euro ETF has staged a commendable comeback over the last few months; since bottoming out at $119.73 a share on July 24, 2012, FXE has managed to climb back over its 200-day moving average (yellow line), although its upside has been capped. Notice that since rising above its historical long-term price average in early September, this ETF has tried, and failed, to summit $130 a share (red line) on several occasions [Download 101 ETF Lessons Every Financial Advisor Should Learn].
The fact that FXE is back over its 200-day moving average is certainly encouraging for those with a long-term perspective; however, jumping into a long position at current levels is quite speculative and not recommended for conservative investors as FXE is flirting with a major resistance level [see also 3 Trading Tips You Are Missing].
If the ECB issues a surprisingly upbeat economic outlook, the euro may have the wind at its back for the day; in terms of upside, FXE has major resistance around $130.50 a share. On the other hand, if worries over the region’s debt problems intensify, FXE could sink lower; in terms of downside, this ETF has support at $128 a share followed by the $126 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Follow me on Twitter @SBojinov
Disclosure: No positions at time of writing.