A Different Perspective on Crude Oil and the Euro

With fresh downgrades on the European sovereign debt situation, as well as the big show that is now taking stage in the United States, there are several trades that I feel are top priority in the playbook. Though things are seemingly heating up over in the Middle East (a civil war in Syria, Geo-political tensions in Iran) I would still look to watch crude oil retest its psychological level of $90 and watch for a further break down to $85 before the end of the month. Along with this, we will begin to see this artificial bubble in the stock markets begin their trail towards the downside but I don’t think we will begin to see this until after the election (though that doesn’t mean that now isn’t a bad time to start to build a limited risk position anticipating a break). The arguments of QE3, as well as the continuation of promising economic data coming out of the U.S. are already priced into this market and I anticipate a series of reality checks will begin to start showing up shortly after the first few weeks of November as we approach the fiscal cliff and also the possibility of some major shifts in the way the U.S. economy conducts business.

Dec. ’12 Crude Oil Daily Candlestick Chart

Moving on, though the euro has left the spotlight as of late; it is important to remember that the unemployment rates in some areas are in the range of +25%. By all means these are not bullish fundamentals considering we are still on the higher end of the mid range of where it’s been trading this year. Germany’s Treasury market can only prove to be a backbone for so long and the same goes for U.S. Treasuries, as rates are already as unappealing as it gets. Once we get the election in the states out of the way, economists will look for a new area to concentrate on, which means the reality of the euro currency will start to come to light again. I would look to find a top in the euro and start to play anywhere between a 5-6 handle range on this currency, as we should be bound between the 32 and 27 level throughout the 4rth quarter.

If you have any questions or would like to speak further about these or any other scenarios feel free to contact me at my trade desk as 800-826-1120 or drop me an email at jkobel@rjofutures.com.