FX Insights: Forex Trade Team Update-28/02/2007
February 29th, 2008
By Moderator,
If you've been around here long enough, you know we trade the EUR/USD in what many consider to be an unconventional manner, like watching things that most people think have zero to do with the currency market...
With the euro making a big, bullish move this week, a lot of traders have been asking me the same questions, like, "How do you know to keep buying the euro when it's so high?" "How do you know how long to hold your trades?"
Those questions are very difficult for me to answer in ways that would make logical sense because of course I have my own style of trading, but I can offer some answers that do make sense and relate to the so-called "unconventional" or "contrarian" ways we trade the market...
And this is stuff you've heard us preach over and over and over again... so, why am I still buying the euro at all-time highs? How do I know to hold on to my longs?
It's because everything outside of the FX market is telling me to do so... all the signals and signs are pointing this direction and have been pointing this direction for the past 3 weeks, which is the timeframe we changed our bias to staying long on the euro... all the market-correlated variables, as we call them have been pointing this direction since the euro was at the 4550 level, which is where we solidified our bias to stay euro long...
Lets look at some examples:
10-year yield -- as we've taught, when the 10-year yield drops, the euro will typically rise against the dollar. Just this week the 10-year yield has dropped 30 basis points and what has the euro done this week...?
Dow -- when the Dow goes up typically the euro goes up, very simple... this week the Dow made a comeback recovery and rally and it's now up 6%... and what has the euro done this week...?
Gold -- gold up = euro up, very simple... gold has made multiple new all-time highs this week and is pushing towards the $1000 level... and what has the euro done this week...?
Oil -- oil up = euro up, very simple, once again... oil has gone nutty and keeps pushing higher above the $100 level... and what has the euro done this week...?
USD Index -- euro up = USD Index down, very simple... the euro is the most heavily weighted against the dollar on the Index... on Sunday's update we told you to watch the Index very closely this week as were forecasting some bullish euro gains, sure enough, the Index gave away support and is testing more support levels as we speak...
So, here we have all the market correlated variables telling me to keep buying the euro and to keep holding my best euro entries... they have also been telling me not to add heavy euro shorts on an intraday basis, but on a swing basis (i.e. position trading). I've added three shorts this week, but they were added against my net euro longs, so no margin was used to take those shorts and they are being held in my accounts on a purely swing basis, set-up for the coming correction, whenever that should occur...
I hope what I've explained doesn't sound preachy or arrogant, but I want to very plainly and clearly blunt show why I watch those market-correlated variables so closely and what great indicators they are, and how I use them to help me know when to get in to the market and how long to stay in the market...
When the market is on these types of bull runs, I go from being intraday to swing in my trading style. Hopefully this sheds a little more light on my trading mindset under current market conditions...
EUR/USD Fundamentals:
GDP was absolutely terrible today, as forecasted... growth has slowed to zero... the indebted and frantic consumer is weighing heavy on GDP and will continue to weigh heavy on the GDP... end of story on that one.
Tomorrow we have a ton of data and I honestly do not have the brainpower right now to pick apart each piece of data, but overall, I have to say we'll see some USD- data tomorrow... and for that, I'm staying euro long tomorrow and keeping my same bias to stay long...
The only thing that will bring the euro down tomorrow against the dollar is if we see profit taking on EUR/USD longs, profit taking on gold and oil longs, and the Dow take a beating...
Fundamentally, we'd need major USD upside and EUR downside surprises to cause the market to drop...
I do not believe the market is done running the euro up... this afternoon the banks and brokers took the opportunity to trigger stops above 1.5200 before falling back down, but we've not seen the last of 1.5200 and I'm forecasting we eventually go even higher, based on what the market is showing us...
All my best euro longs are staying open, very simple. I've bought in again on the signal we triggered tonight and will buy again at all buy levels given...
Trade smart! Use strict risk and money management please!
See ya in the chat...
NB: To read details about our latest EUR/USD buy signal, please