Friday, July 5, 2013

Next crisis coming from Europe...

What has always baffled me is the fact that it turns out more and more quintessential that the American and Asian markets are immune to what's going on in Europe. An over-inflated Euro, sky high unemployment in Spain, Greece, Italy, Ireland and Portugal (whose government almost collapsed recently) and yet the Dow Jones continues to break all records, the VIX (panic index) is at its lowest point, below 16 points (!)- and even with the speculation that this number is going to be lower.

Doesn't make sense.

It just doesn't add up; high unemployment rates, austerity measures, dissatisfied people on the streets protesting against more cuts - seen on European television almost daily, and yet the United States as well as Asia seem to ignore it.

Aren't all world economies inter-connected, don't they all relate to each other, one way or another? I understand that each economy is its own, but come on now...

EUR/USD already crashing...

This brings me to my next point, and the reason I wrote this post. As you may know, if you've been following this blog, over the years I've specialized in this currency pair. As of this time of writing this pair is on its way to 1.27. Maybe the European markets and leaders finally realize that the over-inflated Euro is hurting the European economy tremendously (expensive export prices, tourism etc). Mostly likely the ECB won't and will hold on to their ridiculous interest rate policy.

In order to get an overview in a situation like this I always like to look at the overall picture, look at the extremes and base my analysis on that. I usually use the fibonnaci retracement levels for that, when it comes to the EUR/USD, this is the result on my chart:

Click on the chart for a larger one.
When I see an overview chart like this (from 2008) I usually see pretty indicators and oscillators along with it, they would decorate the chart nicely, but it would also produce a lot of noise - extra information that you really don't need. This is the chart that I'm going by when I trade the EUR/USD and so far I've been pretty successful, mainly because I see the pivot levels. When the pair failed to fully trade above 1.35 in the beginning of the year, I knew that the next step was to focus on the red zone (that it is trading in right now), Ever since then I've always been pretty bearish on the EUR/USD, and it has yielded me thousands of pips from the beginning. 

It will get worse

Sooner or later the Euro zone and its currency are going to break. Perhaps next year, perhaps the year after that. Proud nations in Europe are no longer going to put up with the austerity measures that are laid on them by more wealthy European nations, and on the contrary wealthy nations will no longer fund the 'poor countries' in Europe. Subsequently a collapse of the Euro would mean a volatility shock wave for the financial markets, and volatility is something we can profit from in the end - don't worry, no one gets hurt, the 'financial collapse' will only occur on paper, perhaps after that each European nation will go back to their original currency - or maybe the currency will be divided into a northern and southern Euro, now that's food for thought! 

Until then, I hold my position. The Euro according to my analysis has a good chance that it will be trading around 1.25 at the end of the year. The 'cliff' (when the Euro will really drop) is a thing for a long term trade - and is probably not even going to happen this year.

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