Friday, December 16, 2011

Trading the Euro? Seize the opportunity!

Now here's a good one! Whether you trade the Euro in Forex or the FXE Euro currency spider - you have a big trade opportunity lying ahead! At the moment, under the current circumstances, the Euro is cheap, very cheap. Hovering around $1.30 this currency pair gets a huge buy rating from me. Although it dipped in the $1.29 territory I foresee great potential for this trading vehicle, with a target set to 1.34 by the end of the year. Here's how I came to this conclusion.
First and foremost, the Dow Jones - currently trading in a sideways direction, indicate that the global markets are correcting themselves, given the fact that the VIX is down almost 8% in the last 5 days. European markets are down, but not by much, I've seen this scenario many times before - usually this indicates the 'calm before the bull run' that I expect to see next week. Asian markets are slightly up and are probably right on the same track next trading week which would be considered a continuation of the global recovery.

It's not all so 'doom-and-gloom' as the major business news sources let us believe. Those news sources are driven by sensational news and what is more sensational than negativity?
Besides, when it comes to the Euro, honestly - what is the alternative? In the short term there really isn't one. It looks like Europe is going to be stuck with the currency for awhile, whether they like it or not. The major economies in Europe already announced that they would do everything they can to 'save the Euro'. And it makes sense. They really don't have any other choice. What else are they going to do? Revert everything to the way it was before the Euro was introduced? That would cost such a tremendous amount of money that wouldn't be even thinkable at the moment. (I say at the moment since this is a short term trade).
But why is the Euro trading this low all of a sudden? Obviously people traded an enormous amount of Euros in for something else. Again, panic - that isn't really there. News about printing more Euros - Europe will fall apart - ECB doesn't do enough etc. etc. etc. It the panic had some foundation to it, it would show in the global markets and especially it would show in the VIX which is nicely showing at a comfortable 24 and then some. Not bad considering the current economic climate.

Now, from the fundamentals to a technical stand point to back up my trade setup; I marked the points with circles,

First, the RSI rebounding from oversold territory, in combination with the MACD. Below that is the Bollinger Band Width Average which is already rebounding. The blue line marks the highest and the lowest point in the past quarter.

Buy the Euro around where it is trading now and set a target price of 1.32 or in my case 1.34 (if you're willing to take on a little more risk). In either scenario the Euro will rise from the 1.30 levels next week.

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