Thursday, March 10, 2011

Euro currency meltdown? Forex update.

After the recent downgrade by Moody's credit rating analysts of Greece and Spain the euro seemed to have reached it peak of trading around the 1.40 range. The currency remains severely overvalued and this may hurt the Euro zone in the long run. The stronger the currency is, the more expensive it is to buy goods and services from Europe. Yet, the current value of the currency is driven up by speculators. It's intrinsic value should lie around 1.10 - 1.25 at the most... I have addressed this in previous posts as well. Another reason why I continue to remain bearish on the outlook of the pair EUR/USD, for currency traders. (And bearish on the FXE for ETF traders.)

This is the overall Euro chart since its initiation;

I call this the 'losing steam chart'. When you look and analyse a chart like this, you see a tremendous uprising in its value in the beginning of 2000, like I said before, mainly due to speculation. 
Given the fact that fundamentally Europe has a stronger economy than the US, its 'fair value' lies at 1.10 - 1.20 at the upside. Now it seems investors and speculators alike, realize that the overvalued currency may be in a downwards spiral from here on out, pretty much down to its actual value. 
What does this mean for short term, mid term trading? Well for short term, I'd wait for a little upswing first before entering a short position, in that way you'll harvest those extra pips before you can buy it back it a few moments later. For mid term analysis, if you already short this pair, you're good. I'd monitor what velocity the pair moves in first though and keep a close eye on it. If it hits 1.37 next week, hold on tight, you might be in for hefty profits!

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