We’re Looking to Sell the EUR/USD on a Pull Back

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The pull back on the EUR/USD is still the trade we are looking for. It hit last Thursday, assuming that the EUR/USD starts moving lower and the trend line holds. At that point, we should have a great trade. This trade has taken a lot of patience but we are set up as well as possible for it to pay off. Looking at the long term trend, it is important to still look for this currency pair to move to the down side. Our technical analysis and charts show that this is still the most likely scenario. The news seem to be continuing to support our current position on this trade.

One of the main factors still hurting the Euro is the downgrade of many nations’ debts by the S&P 500. Just this past week the four nations of France, Italy, Portugal, and Spain had their debt downgraded. At this point, this should not have a major effect because we have known for weeks that the debt rating of these nations was in danger. However, many investment portfolios have requirements allowing only the highest rated securities in them. This means the downgrade could result in selling of offerings from these four nations. So even though economists have known about these problems for weeks there is still going to be an effect.

These problems are not going away, either. Very few think that Greece will be able to make their March 20 payment on their debt deal. This means further debt reduction or debt forgiveness will be needed. If no agreement can be made then Greece will face default – and that is not good news for the Euro. While some degree of bad news weariness seems to have set in with markets and the Euro, that will not stop more bad news from pushing the Euro down in the long term.

Add in the fact that the United States economy seems to be improving, and there really are not any signs out there of the EUR/USD trending up any time soon. This combination of many funds being forced to sell weakening holdings and the stronger US economy is a major reason why this trade continues to look good. The downward trend of this currency pair is likely to continue long term as the short term future shows even more issues coming up for the Euro while the United States economy is slowly gaining steam and momentum. While the movement of the EUR/USD downward might not be going at the speed we originally expected, there is no reason for us to believe that the long term direction is going to change.

Oil prices tend to confirm what we have been talking about with this trade. Despite an obviously improving United States economy, the price of oil actually went down this past week.  This was due to two main factors. One was a cooling demand for oil globally; the other was concern over Europe’s debt crisis and the overall economy of the European Union. This confirmation continues to seem to indicate that the USD continues to get stronger. In addition, there is every sign that the EUR will have to face the same problems throughout 2012 as it did in 2011.

These are things that we need to continue to watch out for in the news reports as well. Future reports of the United States economy continuing to improve will further reinforce our position on the EUR/USD trade. The same holds true for every debt issue that comes out with the European Union. As the economy continues to improve for the United States and Europe continues to struggle, we can expect these trends not only to continue but to be magnified.

Patience is a virtue when trading the Forex. This trade is no exception. The smart move is to continue holding out for the EUR/USD to pull back. A major reason we believe a longer downturn could be right around the corner is because the price is getting very close to the two and a half month trend line to the upside. This obviously flies in the face of major economic news coming out which indicates the USD should be gaining strength to the EUR losing it. The markets are going to have to follow, and when we hit that trend line, it will be time to short it and ride the downward trend.

As with any trade in the Forex, it is important to keep an eye out for any unexpected reports that might affect the expected trend. Great news from the European Union could do this. A sudden reversal in the positive fortunes of the United States recovery could have the same effect. However, at this time, we are sticking with the assertion that when it comes to the EUR/USD, the US Dollar is much stronger and it makes sense to sell the EUR.

Good Investing,

Jason Fielder

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