Busch: How to Trade Euro Weakness
Last week, I recommended just dumping the euro, and it worked well.
It's still a good plan.
Last time I was on "Squawk on the Street,"I said just dump the EUR/USD and that trade worked well. Again, this is not a time to be sophisticated. I provided levels, but said you had to just pick a level you were comfortable with and sell the EUR even at those new lows.
On Tuesday, the EUR/USD put in another new low at 1.2465 and today is putting in another new low at 1.2420. When currencies are putting in lower lows, they are indicating a strong trend that you want to follow until proven wrong.
In a strong downtrend, all of the news is interpreted as negative and has a negative impact to the currency.
The good news is ignored and the currency at best stays stable. (Even a rally in Risk yesterday when US stocks went up, the EUR puts in new lows.) The EUR drops despite all-time highs in EUR shorts according to CFTC data.
Yes, there is a risk for a big snap back, but that will likely be used as an entry point for new shorts.
This is a big downtrend. Sell a rally if we can get one or pick a level with about a 100 point stop. Trade Sell EUR/Buy USD Entry 1.2625 (the old low in January) S/L 1.2725 T/P 1.2325 This isn’t rocket science; this is momentum and strong trend trading.
Don’t over think it.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a contributor to CNBC's Money in Motion Currency Trading.You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch .
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