Home > Commodities and Rates, Getting Global > EURUSD – Double Bottom Anyone?

EURUSD – Double Bottom Anyone?

 

Over the course of the past couple of weeks I have expressed my logic for becoming bullish on the Euro and feel pretty good from a risk reward standpoint that now is as good as any to be long EURUSD. Just as the tides of global risk markets rise and fall in a synchronized manner, the Euro should certainly catch a bid along with equities, carry trades and hard assets (namely industrial metals and energy).

How high will it go?  It's possible it turns out to be nothing more than a dead cat bounce, however;  provided the widespread pessimism and sheer size of the short positions (record size in both the futures and cash markets), a rebound of 10% or more seems well within the realm of possibility. A bounce of this magnitude from the low takes the EURUSD back to the 38.2% retracement level from the November '09 peak. Approximately 1.33. Certainly not unreasonable.

EURUSD

There is no question that the Euro and its constituents have a colossal mess on their hands and unfortunately, from where I'm perched, looks like a preview to a horror flick coming one day to a theater near you. However, the market has a propensity for burning as many market participants as it can before ultimately vindicating those with the strongest hands. At some point, the late comers will scream "Uncle!" and cover their positions. As I have stated before, massive macro shifts of this scale do not take place overnight and if the Euro is to one day meltdown then it will take longer than most think.

If in fact this analysis is wrong, I'm looking at a backstop on this trade under the double bottom low around 1.21. If a stop is triggered, one can always re-enter at a later time after the market provides a better look. As always, be safe and use stops…….discipline over conviction!

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