Forex Trading - EUR/USD Update

Yesterday I wrote "I'm being especially careful of shorting the Euro, as any comments that Draghi may make at the press conference tomorrow may give the Euro a boost. It has exhibited unusual strength over the past 3 days against the dollar."

If you look back through price action, the Euro usually strengthens substantially the days/sessions prior to Draghi speaking. I hypothesize that these bouts of Euro strength are mostly due to expectations of Draghi speaking, and it tends to play out as a self fulfilling prophecy. It helps that Draghi is an incredibly intelligent person and that he understands the expectations of market participants. He knows what he needs to say in order not to disappoint institutional traders & investors. 

That brings me to my next point. When will I feel confident in shorting the Euro again? I've often pondered this question, as I am of the opinion that the current level of optimism regarding the Eurozone is not warranted given the market fundamentals. I believe the best approach is to view the situation in the Eurozone from a medium to long term investor's point of view. It all comes down to the stability of the Eurozone. Is it safe to invest there? Are the policy makers tackling the problems?

For a die-hard bear like myself, I view the debt crisis in the Eurozone with extreme pessimism. However, that pessimism isn't going to make me any money. I need to be able to predict where price is going next. It's healthy to understand the fundamentals and develop a bias, but I need to be able to think objectively and trade the price action in front of me. As much as I despise the level that the Euro is trading at, I think there needs to be real questions about the stability of the Eurozone (from the bulls) in order to see a good sized correction or a reversal of the uptrend starting on July 25th. Just because market fundamentals in the Eurozone continue to deteriorate, it does not necessarily mean that the perceived level of stability will change much. If Spain bond yields climb to 8%, then the Spanish government can simply request a bailout. In addition, I'm fairly certain that Draghi will not hold back from giving the markets more stimulus if he considers it necessary.

Note: Any bad economic news or data prints that cause dollar strength can be counteracted by central banks stimulating the economy, or the threat thereof (causing dollar weakness.)