Three Ways I’m Playing the Euro

Tuesday, May 8, 2012

While I know the EUR/USD is by far, the most popularly traded pair, there are other ways to play the drama unfolding in Europe and with more price and psychological clarity.

One of the first things I look for is a clear psychology on the daily chart of any market I want to trade. This step is as simple as answering the following question: Is the 34EMA Wave moving in either a “twelve to two o’clock” or “four to six o’clock” direction on the daily time frame. This is what I call looking for a trending Directional Bias. If there is a trend on the daily I then know that there is a dominant psychology ruling that market.

Consider that in an uptrend that there is more likely to be buyer support waiting on pullbacks and bullish momentum willing to carry the market to higher highs. On the flip side, in a downtrend, consider that there will be selling resistance on bounces and bearish momentum pressing the market to lower lows.

My focus is preferably on pairs that have trending Directional Bias. Choppy, range-bound markets are account killers. Yet interestingly the news surrounding Europe of course will attract traders to the EUR/USD but there is no clarity in the sideways range on that daily time frame. I think that attention on the euro would be better placed through pairs like the EUR/JPY and the EUR/GBP over the EUR/USD. Let’s take a look at all three and see why.

The EUR/USD is only as interesting at the gap is making it right now. That gap has attracted attention and attention to PRICE (not just the fundamentals surrounding a pair) is a good thing.

Past performance is not indicative of future results

The daily EUR/USD remains in a choppy range and while the move lower has attracted attention there has not been sufficient follow-through to create a daily downtrend therefore a overall bearish psychology still in not dominating price action.

 

The gap in the daily EUR/USD has yet to be filled and that “black hole” is a vacuum for price action. The gravitational pull to 1.3080 to 1.3088 could still pull prices higher before exhausting back into the range lows of the sideways chop. With or without the gap, the 1.3080 to 1.3100 would be considered a near-term resistance area.

Now let's move to pairs that have a relationship back to the euro but have a trending Directional Bias and therefore a clearer psychology ruling them.

Arguably, the daily EUR/JPY is not necessarily markedly clearer in term of a trend that the daily EUR/USD but the 34EMA Wave is beginning to show signs of a "fresh" transition and the 200DMA plays a role in identifying a signigicant level of near-term resistance that has already been tested.

Past performance is not indicative of future results

The daily EUR/JPY is moving lower and - more importantly - has broken the support that was the 200DMA. The gap left behind was closed and the 200DMA was simultaneouly closed leaving behind a "stacked" resistance level overhead.

 

Another way to play the euro weakness is to pit it against the pound sterling.

Past performance is not indicative of future results

The daily EUR/GBP is taking advantage of primarily the pound sterling's strength and the euro's range. Realize that if the euro finds gap resistance and/or slips lower, this chart will accelerate lower. THe EUR/GBP downtrend sets up swig shorts on rallies to the area between the 20 period SMA close and the 34 period EMA low.

 

So there you have it, two alternate ways to play the euro without having to deal with the sideways chop of the EUR/USD!

 

As an active forex trader and Chief Currency Analyst for InterbankFX.com I do write for a number of sites all over the web and I am happy to say that I will be posting updates at www.IBFXconnect.com. My Activity Board will feature the trades from my trading account as well as intraday commentary.

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Posted By: 

Raghee Horner

Raghee Horner, chief currency analyst for IBFX, provides her personal daily trading tips and insights through Dailyforextradingedge.com. An experienced trader with over fifteen years in the markets, Raghee is the co-founder of EZ2Trade Software and has taught her brand of technical analysis and charting strategies to students all over the world. She is an international author and has taught currencies, futures, and equities trading for over a decade.
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