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Quick Update on the Euro

It looks like the Euro trade vis-a-vis the US Dollar is going just about as expected. I have spent a little more time sharpening trend lines and potential fibonacci levels to refine a probabilistic roadmap for the Euro.

Initially, the bounce came as anticipated and right in line with a primary fibonacci support line (see chart below). Following the bounce, as I had hoped, the Euro continued its decline quite rapidly.

Currently, there is a trend line that forms nicely along the low points of the Euro's recent price incline relative to the US Dollar (from last November). The Euro's recent drop sliced nicely through that line the other night. So now, what was formerly a support line is looking a bit more like a line of resistance with the Euro currently bumping along, but not breaking back above, this trend line.

Should the Euro remain below this trend line, it bodes well for my short position as it will likely test lower levels to "find support". My next target for a potential stopping point or temporary low would be at approximately $1.33. This price point provides a confluence of two potential support levels. The first is the broader trend line supporting the full trading range of the Euro over the recent rise since November of 2012. The second potential support is another major fibonacci level derived from the trading range from the lows of last November through the recent highs (noted on the chart).

As with the last post, I intend to take a little profit off the table at or about $1.33 and then would anticipate adding additional short exposure after a potential bounce off of those levels.

Please keep in mind that I am only talking probabilities and assumptions through the lens of technical analysis. Though I have a high degree of confidence due to some of the recent circumstances and trading patterns, I, by no means, know for certain the direction or timing of any particular trade. Though I am extremely comfortable with a long-term short position against the Euro due to its and its members' many dysfunctions and lack of ultimate sovereign unity, that position could turn out to be a much longer-term investment than originally anticipated as some dysfunctions can function much longer than I would ever anticipate.

All of that to say, be cautious and do not start piling on shorter-term short positions for this particular trade without very tight stops. Please note that the easy trade has already occurred from last week to today. Though I believe there is more room to go lower, you are not exactly catching the elevator down at the top floor at this point.

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

EUR/USD, Euro, Fibonacci Levels, trend lines, US Dollar