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Doubling Down on My Euro Short

Over a good portion of last week I materially increased my short position in the Euro (basically doubling down) as it reached highs not seen since about a year ago. I write this to remain transparent with my thought process as it unfolds and for those of you who have followed this or similar trade recommendations. 

For longer-term trades, I do believe the Euro is overvalued here relative to the US Dollar, but shorter-term traders should be aware that the Euro has dropped about a point (which is fairly large for currency moves) since I originally placed the additional trades. I will be taking a little profit off the table given the large move in a short period of time to potentially take advantage of a bounce off of potential support levels. Translation: now is not the best time to pile on additional short exposure unless and only if you are building a longer-term short position (which I do recommend).

The other side of the trade is that we are currently sitting at the confluence of two Fibonacci levels at approximately $1.348 and after a quick drop of this magnitude, I expect at least a small bounce. If there is no bounce, I believe the next level to watch would be $1.34. If it slices below $1.34, I would expect $1.3150 to be the next level of support. My anticipated play on the way down would be to take a little profit at or near these potential levels of support and then add additional short exposure on the potential bounce. I promise to write an article later on the occasional usefulness of fibonacci levels as a trading concept to pick potential entry and exit targets.

I keep a very long-term core short position initiated from the $1.40+ level, so I would welcome a fall that was much faster and more violent than I am currently anticipating.

What I would not be quite as excited by would be a near-term bounce that carried well above $1.36. I don’t expect it, but would feel much more comfortable that this level was in the rear view mirror for a long while if we break through and stay below $1.34 in the near future.

While I write this (10:45 PM on a Monday evening, and yes, I do this for fun!), the EUR/USD currency pair broke through $1.348 and is making its way to $1.34 in a hurry! Since I decided to finish the post for you prior to executing the trade to take some profits, that delay just bought me a little more than two tenths of a penny in additional spread on my position (equivalent to an extra 7.4% of profit). Who says blogging isn't profitable?

Disclosure: Currency trading involves a high degree of leverage and risk. Please do not participate in currency trades unless you employ strict control of risk and can afford to lose your entire investment.

Positions: Short the Euro, Short the Yen.

Written By: Joshua Ungerecht
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Currency Trading, EUR/USD, Euro, risk management, US Dollar, Yen