Market Wrap-Up
The Euro began falling against the greenback as the European Stock Market opened and remained under pressure throughout the day. The reason? Investors realized that the deal which just "saved" Greece didn't actually fix any of the fundamental problems. Greece was granted another tranche of aid, which it will waste away while it is busy not fixing any of the underlying problems with its economy.
The Euro may have fallen further against the dollar if not for currency flows from Euro cross pairs as worries over the fiscal cliff caused investors to sell the high(er) yielding commodity currencies across the board.
Bullish Factors
We are in an uptrend on the 1 hour and 4 hour charts. We are in an uptrend. Repeat after me: WE ARE IN AN UPTREND. Trust me, I realize how intensely attractive it is to short the Euro because I know the market fundamentals in the Eurozone are absolute garbage. The problem with randomly shorting the Euro is that it can always go higher. Throw a Spanish Bailout and Draghi saying the Euro is irreversible into the mix and the Euro can skyrocket towards 1.3500. Heaven forbid there is legitimate compromise on the fiscal cliff and we could see the U.S. Dollar weaken substantially.
The chart below clearly depicts the current uptrend. The key to trading the Euro in this situation is to respect the trend. The trend is your friend until you trade against it. If you fight the trend, more often then not it will put you in a choke hold and apply pressure until you black out. GG.
Bearish Factors
That said, I'm currently short. The trick to swing trading in a counter trend situation is to play the important levels. We are in a clear downtrend on the monthly, weekly, and daily charts (if you scroll out.) This latest "deal" concerning Greece is problematic because a close examination of the details reveals that little was accomplished and there are all sorts of things that can still go wrong with the deal (i.e. conditionality clauses.) Sentiment over the current situation in Europe seems negative, and I don't see any potential catalysts for positive sentiment in the next couple of days. It's also worth noting that if elections were held today, polls are showing that Syriza would get the most votes. From Zerohedge: "Support for anti-bailout Syriza at 23%; New Democracy 20.8%; Golden Dawn 9.8%." Forget about future tranches of aid. Once Syriza gains more control of parliament, Greece will probably vote itself out of the Eurozone.
So when I'm trading counter trend, I believe how price action responds to levels is crucial. I can't simply "let the trade run." I need to protect my profits. To do so requires that I take profit at key levels and wait to see whether price is repelled from the level or ultimately breaks underneath it.
Key Levels
1.2950 - We broke this level. I think a test of 1.2900 is likely with a possible bounce off of support at 1.2875. We will need to see a break below 1.2875 to open up further movement to the downside.
1.2825 - This should be the next decent level of support below 1.2875.
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