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The Euro's Broad Trend Line Has Been Broken

The Euro's broad channel trend line that has been intact since November was just broken yesterday. This continues to be good news for me as I was very short the Euro and expect that this development will lead to lower prices still. 

As discussed previously, I strapped on additional short exposure in the $1.336, range, below the main trend line, to attempt to take advantage of the potentially larger move down. 

As mentioned in the post referenced above, I had also been prepared to take profits and lighten up on my short position on the other side of the primary trend line had the Euro traded materially in the opposite direction. It is good to always be prepared for the other side of a trade and not get too committed to any particular direction (a key difference between trading and value investing). 

The next Fibonacci level lower at $1.33 is already behaving like support, providing an initial stopping point for the Euro's decline after breaking the larger trend. This level also happens to coincide with a former substantial basing of the Euro prior to the last price high, which I highlight on the chart below. 

The price action has already carried the Euro from a bounce off of potential support at $1.33 back up to the lower trend line of the broad channel that was just broken (currently intersecting the $1.338-1.34 range). So it looks like 1.33 will be the level to watch on the downside and 1.338-1.34 will be the level to watch on the upside. 

The broken trend line at 1.338-1.34 will need to hold to lead to much lower prices. Otherwise, the entire move down since a week ago or so could simply be a head fake before much higher prices. Therefore, strict discipline is warranted and I will be keeping tight stops above the broken trend line (a touch above $1.34) and additional short exposure below the $1.33 level.

 

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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Currencies, EUR/USD, Euro, Fibonacci Levels, technical analysis, trading, trend lines, US Dollar