Focusing on the EUR/USD: One of Three Open Positions

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Another week has passed as we continue to watch several different open trades. We still want to watch the price of gold versus the US Dollar. Likewise we also will continue to hold a position on the EUR/CAD power play. We will talk about both of these trades later in this article, but right now let’s concentrate on the EUR/USD. We fully expect this currency pair to trend downward because there is not a lot of positive news coming from Europe while the USD is becoming stronger.

Why do we expect the EUR/USD to keep dropping?

There are several good reasons to bet against the Euro in this currency pair. First of all, the economic sentiment in Europe just fell to a three year low. This shows very little belief that the current situation can be solved by the current measures being used. In fact, the only two nations that did not see a decline in economic sentiment were Malta and Austria.

Business indicators going forward in the Euro-Zone are also not good; Greece and Spain are once again seen as major areas of concern. Greece failed to form a working government and must hold another election. The nation’s economy is also in extreme turmoil with little sign of progress.

If anything, the severe austerity measures even seem to be working against the already beleaguered country. Many experts are beginning to wonder if a Greece exit from the Euro-Zone is inevitable. Even if this is the right move for the long term, it will have serious shockwaves in the short term. At the same time, Spain is struggling to finance its banking system. Both nations are facing huge unemployment numbers without a lot of relief in sight.

While the US numbers are not always optimistic, they at least display something that the Euro doesn’t: steady progress. Jobs are being created while many manufacturing reports and economic reports indicate improving conditions across the nation. The US Dollar is seen once again as a safe currency. Because of this, it continues to gain strength even against market conditions that suggest gold should be gaining instead of dropping.

When looking at the Euro, you see a currency with major problems stacking up one after another. Even potential solutions such as removing Greece from the Euro-Zone come with an entirely new set of issues to deal with. Compare that to steady growth numbers for the US and it is no question why we are still looking for the EUR/USD to continue dropping.

So what’s going on with the EUR/CAD?

This trade is another one that looks good in the long run for shorting the EUR in comparison to the CAD. The pair fell to its lowest value in over two years as fears over Spain’s banking situation hammered the Euro. Italy’s soaring costs of borrowing is also adding into the worry and that’s not even bringing up the Greece situation again.

The CAD, on the other hand, is doing quite well. Canada’s economy has been solid the past several weeks and in many ways looks even better than the US economy. Positive job reports and unexpected growth are only feeding this momentum. A growing number of traders are agreeing with our original assessment that the EUR/CAD is definitely on a downward trend and we are bearish for the long term on this currency pair. Also remember that initially this was a power play trade on the back of the USD – which is also gaining in value consistently against the beaten up Euro.

What’s going on with the gold market?

Gold continues to fall despite many major fundamental reports on the US market failing to hit expectations. In fact, last Wednesday gold fell nearly 1.5% as more bad news on the Euro sent a rush of investors towards the USD. The instability with the Euro-Zone is not only hurting the value of the Euro in many of its currency pairs, but it is also killing gold prices. With the EUR getting hammered as it is, only the USD remains as an obvious strong and safe currency.

Since the USD and gold traditionally move inversely to one another, it makes sense that the stronger USD is driving down the value of gold. While the US job and growth reports haven’t met expectations recently, they still display steady solid growth. This is far better than the mess-taking place in Europe and that’s why gold prices continue to fall.

Right now we’re holding as we’re still waiting on a Trend Finder Arrow.

So what’s this all mean to us?

We’re looking to short the Euro in both the EUR/USD and EUR/CAD pairs, which means that for now, we hold our positions as these pairs keep lowering in value. For gold, we are holding steady and waiting for a Trend Finder Arrow to appear.

EUR/USD

The EUR/USD pulled back today, but we are still making money on this pair intra-day. Below is an example of the long-term view of the EUR/USD. Our position that we are building is $800 at this point. After another hundred-pip move to the downside, we will look to move to break even on half to limit our risk. We are looking for it to move down to 1.2000 within the coming weeks.

EUR/CAD

We are still in a hold on this one, just waiting on a trend line break and a Trend Finder arrow.

Gold

Gold has made a triple bottom and we are waiting for it to be broken. When this happens with a Trend Finder arrow we are going short.

Good investing,

Jason Fielder

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