Wednesday, November 9, 2011

Euro drops significantly

What a day! Dow down almost 400 points, euro dropping a few hundred pips due to fears that Italy may be next? What does this mean for the EUR/USD trade for the rest of the week? What to do in a volatile market like this.
Well, for one - buckle up because it's going to be a wild rollercoaster ride! I have always been bearish on this currency pair. Ever since it was trading above 1.40..
Remember, a few years ago it was trading around 1.50 and dropped all the way down to 1.19 and that all in a matter of a few months. In my opinion the Eurozone was even in a better shape than it is right now...
First Greece and now it seems like the contagion has spread to Italy. This domino effect is going to continue if Italy fails to get their monetary act together, and ultimately conclude the faith of the Euro.
That's why Italy is such a key player, it is also a much larger economy than Greece and holds about 13% of the Eurozone.
Berlusconi is not quite the most popular figure among the Italian people, however him stepping down could create even more anxiety in the Eurozone - which is highly likely and already sort of began if you ask me.

I'm bearish still on this trade, although the Euro seems incredibly cheap compared to a few days ago, I'm sticking to a negative outlook.
It is heading towards the lower 1.30's and once it breaks under the 1.30 levels be prepared for a nosedive!
For the short term this week, I'm watching the news out of Europe closely but have a 1.33 range already in sight.

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