The Best Play On The EURO

No matter how much it worries you or how much we would all like to see it go away, the Euro debt issues remain. The European Union continues to struggle because of multiple nations’ debt issues, including Portugal, Ireland, Greece and now Italy. If that were not enough, the slow global economic growth after the 2008 worldwide economic crash is preventing a normal recovery. Euro debt could end up sinking their economy further and trigger a domino effect around the world.   It is easy to see why there is so much angst.

Part of what is fueling the uncertainty are the reactions coming from different nations in the European Union. Finland easily agreed to support expanding the IMF to help Greece and other nations who still need help. Germany’s coalition government on the other hand is struggling immensely to do the same. Spain and Italy have made some solid movement towards dealing with debt while Greece and Portugal struggle more. With 17 very different nations each struggling politically to act as one entity, there are bound to be obstacles.

The members of the EU recognize that and have sped up their timetable for the “permanent fix” of their economy and debt crisis. Massive debate remains over whether current funding bail outs will work, or if more money will be needed. This uncertainty not only hurts the EUR value now, but it also could delay recovery indefinitely.

This uncertainty is being priced into the markets and there is more money to be made shorting the EUR/USD as we have been doing. In the Forex market, when one currency goes down in a pair, the other has to go up. Looking to the EUR/USD weekly time frame, we want to be short for a move to the down side. This week’s low already broke the previous week’s low, even though the current value is up for the week by a few pips. That means we are looking for the EUR/USD pair to keep moving even lower.

But, don’t be fooled by the EUR/USD correcting to the upside this week.  The trend is still down.

We play this trade as we discussed in my previous article, by looking at the long term and short the EUR/USD.  The pair should continue to make lower lows on a weekly basis. As long as it does, going short is the right play even though within the down trend there will be retracements to the upside like we saw this week.

With this trade, the thing to watch for is unexpected good news for the EUR which would spike the value of the EUR and jeopardize the trade.  Most people expect some type of debt resolution, so that eventuality is already priced into the markets. But, if a massive hiring spree began in Europe but not the US, then that would change this currency pair trend dramatically.

The majority of technical analysis confirms the bearish EUR outlook for now. Just be on guard for any rumblings of stronger-than-expected employment reports or positive news from the EU debt talks. This could cause a recovery and a strong uptick in currency strength.

Next week we have the US releasing their employment data at the end of the week. If this news is better than expected for the US, the EUR/USD would slide further down. If employment comes out worse than expected, look to tighten stops for a possible exit.

Good trading,

Jason Fielder

 

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