Here’s what FX traders should do in the meantime …
The euro has been strong this year against the US dollar.
The rationale for euro strength? Money flow into Europe, both speculative and longer-term portfolio flow as the European banking system deleverages global credit lines and brings money home.
But, over the intermediate- to long-term, the strongest driver for the euro and US dollar relationship has been relative yield, with expectations impacted by relative economic growth forecasts.
Things will change …
Presently, there is quite a large divergence in play, i.e. the path of euro-US dollar has tightly followed the yield differential. If it is rising in favor of the Eurozone, then the EUR/USD pair tends to follow in similar fashion, and vice versa.
This year, however, the yield differential is moving strongly in favor of the US which is to be expected given the relative growth forecasts comparing the US and Eurozone, but EUR/USD continues to rise.
I believe this divergence gap will be closed,
I believe we’ll see a sharp decline in the EUR/USD rate in the months ahead as price turns to reflect the value suggested by the yield differential.
What should we do now?
Well, long-term minded investors could sell short immediately using a euro ETF. But the real money to be made is directly through the forex market.
Now one probably shouldn’t short EUR/USD and then just forget about it. That’s an easy way to get burned. Rather, one should be prepared for a substantial euro decline without necessarily betting on it.
That means trust the short-term technical setups. Make money based on what the charts say NOW. And let the big trades (like a euro implosion) happen when they may. If you’re consistently applying a proven and structured trading framework, I can assure you you’re not going to miss the bus on the euro trade.
If you don’t consider yourself equipped, then start preparing.
Jack Crooks
About Jack Crooks
President & Chief Trading Officer
Jack has over 25 years of experience in the currency, equity, and futures arena. He has held key positions in brokerage, investment research, money management, and trading.
Jack is founder and president of Black Swan Capital LLC. He was also founder of Ross International Asset Management (a Registered Investment Advisory firm specializing in global stock, bond, and currency asset management for retail clients), General Manager of Plexus Trading (specializing in currency futures and commodities trading) and Black Swan Capital Management (a commodities advisor trading firm specializing in foreign exchange trading).
He’s recently outlined my entire personal trading framework, the nuts and bolts of what helped my members harness the potential to make as much as 42% ROI last year. And He’s sharing it with those who are committing themselves to improving their trading.
Click HERE to find out how you can (and should) jump at this opportunity to map out trading success and profit in forex.
