Euro USD – What the Living Heck are we Doing Up Here?

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Euro USD – What the Heck are we doing UP Here?

You think Euro is down right? Wrong!

You are suffering from a common trading syndrome – recency bias.

You only think Euro is down because you think the most recent prices are the ones you should be looking at – wrong!

Where were you in October 2000? I don’t know but I can tell you where Euro USD was:

0.8225

That is 34% lower than where we are now!

And guess what, there was no Euro crisis, no Greek debt problem, no Global Financial Crisis, no issue with the PIGS (Portugal, Ireland, Greece and Spain).

May 2011

ONE YEAR AGO Euro USD was 1.4938.

We have fallen 2,400 points since then. Another 2,500 points or so and the rate will be at parity!

Technical Trader

If you follow my blog or my website or you have read my book, you will know that I am a technical trader. Only about once every two years do I have the wonderful combination of a technical view going hand in hand with both a fundamental catalyst and a psychological trait that blinds traders and fund managers – like recency bias.

This is one of those times.

Europe Double Talk

IMF head  Christine Lagarde said the impact Greek exit from the Euro would be “messy”.

Former Greek prime minister Lucas Papademos (also former European Central Bank deputy chief) said a “Greek euro exit will be disastrous”.

In the past few months ECB policymakers have warned a Greek exit could have disastrous consequences well beyond Greece’s borders.

This month Bank of England governor Mervyn King stated that the Euro zone is “tearing itself apart”.

But in the last week ECB policymakers have turned around and are now saying that a Greek exit from the Euro is “manageable”.

Let’s think about that…

46 Hours

I love what Bloomberg reported this week:

“Greece may have only a 46-hour window of opportunity should it  need to plot a route out of the euro. That’s how much time the country’s leaders would probably have  to enact any departure from the single currency while global markets are largely  closed, from the end of trading in New York on a Friday to Monday’s market  opening in Wellington, New Zealand, based on a synthesis of euro-exit scenarios  from 21 economists, analysts and academics.

Over the two days, leaders would have to calm civil unrest while managing a  potential sovereign default, planning a new currency, recapitalizing the banks,  stemming the outflow of capital and seeking a way to pay bills once the bailout  lifeline is cut. The risk is that the task would overwhelm any new government in  a country that has had to be rescued twice since 2010 because it couldn’t manage  its public finances.”

Hmm, my money is on the exit being messy.

And I like what my friend Nigel Babbage said:

“Can you expect a group of countries that have been at war on and off for centuries, to share a common economic policy for long?”

Predictions

I don’t like predictions, and as a technical trader I don’t predict the market, I trade what I see in the charts.

But I do like the thought of making $100,000 shorting Euro.

So I worked out that if I am short $250,000 EUR USD and EUR USD gets to parity ie. 1.000 this year (remember we have fallen 2,400 point in a year, the next 2,500 points can go a lot more quickly if Greece exits), I will make around $100,000.

WARNING: This is not a trade recommendation. Do not take a large short Euro USD position unless you know what you are doing. This currency pair is NOT going to go straight down, and I might even be WRONG! If I am I can stand the loss!

Read the disclaimer above. If you are looking for a silver bullet, you will most likely get one – in the head.

Happy Trading.

Oli Hille

Author and Trader

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