Gartman: Sell the euro's 'short-covering rally'

A day after a huge selloff on the euro, the currency enjoyed a nice bounce—and a potentially good selling opportunity for currency traders.

Widely followed investor Dennis Gartman believes Wednesday's euro tumble, which took the currency below 1.05 against the dollar, was in part an overreaction to comments from European Central Bank President Mario Draghi, who said a weak euro was helping the region's economy.

At a conference in Frankfurt, Draghi defended the ECB's foray into U.S.-style asset purchases, or quantitative easing, and those holding the currency took the remarks to heart, taking the euro down to a near 12-year low. The euro rallied to 1.0634 in Thursday morning trade, a gain of more than 0.8 percent.

Beyond Draghi's comments, Gartman said the move higher was a "short-covering" rally due to "far, far, far too many calling for" parity against the greenback.

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"Everyone is awakening to the reality that perhaps they'd overdone the response to Draghi's comments," Gartman said Thursday in The Gartman Letter . "Sometimes, simply, psychology trumps all other things; this has been one such time."

However, Gartman believes the euro remains in a longer-term downtrend, and strength should not be bought but rather sold. He expects the currency to head into the 1.0976-1.102 range before heading back down to parity.

"We'll stand hard upon the sidelines for a while then, awaiting our 'target' zone and awaiting a few days that shall be sufficient to take the (euro) from the egregiously over-sold levels that prevailed only a few hours ago to what shall be equally over-bought levels sometime next week," he wrote. "Such is the nature of markets."