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

by on September 12, 2012 | ETFs Mentioned:

Major equity indexes advanced slightly higher amid continuing speculation that the Fed will offer up another round of quantitative easing at Thursday’s FOMC press conference. Stimulus hopes have been bolstering stocks higher ever since the ECB went ahead and announced its bond-buying initiative, which has ultimately put tremendous pressures on the Fed to follow in their footsteps. In light of the current backdrop, it seems that the QE 3 announcement has been “priced in” so to say, and as such, anything short of affirmation during Bernanke’s speech on Thursday will likely leave investors with a sour feeling and spark a sell-off [see also Roubini Bets On QE3].

Ahead of the FOMC rate decision, investors will have to digest another pivotal development taking place overseas. With German courts slated to make a ruling on the proposed European Stability Mechanism later today, our ETF to watch is the Rydex CurrencyShares Euro Currency Trust (FXE, B-). This popular currency ETF will come into the spotlight as investors react to lawmakers’ decision regarding the proposed $640 billion eurozone bailout [see also Euro Free Europe ETFdb Portfolio].

Chart Analysis

This euro ETF has been able to hold its ground after gapping higher following the recent ECB announcement of the “open monetary transaction” plan. FXE has deviated significantly from its upward sloping blue trend line as recent fundamental developments have bolstered this ETF to three-month highs. Above-average trading volumes over the last several days have also added to the bullish case as investors have demonstrated their improving sentiment in the face of looming uncertainties [see also ETF Technical Trading FAQ].

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From a technical perspective, FXE is currently in a “sweet spot;” it is flirting with resistance at the 200-day moving average (yellow line). Despite encouraging price and volume trends, investors should be cautious seeing as how FXE  failed to summit the $128 level not too long ago on May 21, 2012 [see also 5 Tips ETF Traders Must Know].

Outlook

If the court rules in favor of passing the European Stability Mechanism, bullish euphoria will likely follow; in terms of upside, the next resistance level for FXE past the $128 mark comes in at around $130 a share. On the other hand, selling pressures could emerge if the court ruling throws a wrench into ongoing discussions between European policy makers. In terms of downside, this ETF has minor support at $126 a share followed by the $124 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.