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

by on January 10, 2013 | ETFs Mentioned:

Earnings season jitters evaporated from Wall Street as upbeat results in the first round bolstered major equity indexes higher on Wednesday. First to report, aluminum giant Alcoa set a positive tone for the season after sales topped estimates, while Seagate Technology invited the bulls to the tech sector as quarterly revenues topped analyst forecasts. Looking ahead, today’s weekly jobless claims report will come under the spotlight seeing as there have been virtually no other major economic reports on the homefront this week [see also Favorite ETF Positions For 5 Super Investors].

On the international front, investors will pay close attention to the European Central Bank’s rate decision, which is slated to take place just a few hours before Wall Street’s opening bell. As such, the Rydex CurrencyShares Euro Currency Trust (FXE, A) may see an uptick in trading activity as investors react to the latest economic commentary issued by policymakers overseas; analysts are expecting for the rate to remain at 0.75%, however, any hints of an upcoming policy changes can lead to big swings in the currency market [see King Dollar ETFdb Portfolio].

Chart Analysis

FXE has kicked off the year on a sour note compared to broad-based domestic equity benchmarks, which continue to hold onto gains. Nonetheless, this ETF appears to be building out support just under the $130 level which is encouraging for two reasons. First and foremost, if FXE can settle above $130 a share it would mean that it has finally conquered this resistance level (red line), which served as a barrier on several occasions in the fourth quarter of 2012. Second, establishing support at current levels would mean that FXE is in fact on track to resuming its longer-term uptrend (blue line) which started on July 24, 2012 [see ETF Technical Trading FAQ].

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FXE is currently trading in a sweet spot, which makes entering into any sort of position a bit speculative; eager bulls should considering waiting until this ETF is back above $130 a share before jumping in long, since any break to the downside may easily drag it back to $128 a share [see 101 ETF Lessons Every Financial Advisor Should Learn].

Outlook

If the European Central Bank issues a surprisingly upbeat economic outlook, the euro and FXE may have the wind at their backs on the day; in terms of upside, the next major resistance level for this ETF comes in at the $132 level. On the other hand, any pessimism expressed by policymakers can invite bearish pressures; in terms of downside, FXE has support at $128 as 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.

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Disclosure: No positions at time of writing.