Where Is the Euro Headed Now?

  • Nothing wrong with taking a shot
  • Good follow through on core trades
  • Euro could push through 1.1200
  • Stay patient and you should be rewarded
  • What kind of message will the Fed send

WORTH THE SHOT - OK..so I took a stab late Wednesday at a USDJPY long into the severe drop. I put a tight stop on and it took me out for less than a 35 point loss. No biggy. Was worth the shot given where things were trading at the time. In any event, the price action as been welcome to my risk off portfolio overall. Clearly the big move of the day for me was the drop in stocks. I have been holding an SPX500 short from around 2045 for some time, and on Wednesday, the trade finally saw the light of day and traded into the money. I continue to hold a strong conviction with this trade and believe there are major setbacks ahead. We need to close below 2000. Once we do, look out below. Otherwise, while GOLD didn't do anything much on Wednesday, the market is still showing signs of wanting to bottom out following the break to fresh multi-year lows below $1050 in recent trade. Meanwhile, AUDNZD continues to show signs of a major bottom and I suspect this trade will be most fruitful into 2016.

SIMPLE MATH - So what's up with the Euro. I know many of you might be trading he Euro right now and you may want some insight here. Well..I think now that we have broken back above the post-ECB high, there is risk for this correction to extend further, towards 1.1200 in the sessions ahead. Why? Well, technically, the consolidation post ECB has been a 200 point consolidation. So this latest upside break, would project a move in equal size before the market finds resistance. So this takes up to the 1.1200 area. The 61.8% fib retrace off the August high to December low move comes in around 1.1255, so this could be a level to consider selling into. As much as this may not play out, and as much as the Euro downtrend may reassert without moving towards 1.1200, I think it better to be safe than sorry, and wait for a healthy rally that no one is expecting before selling.

NEVER SO SIMPLE - There are probably a lot of market participants out there thinking this rally back above 1.1000 is a great sell opportunity. It may very well be. But at the same time, the market has a way of punishing those who think they see things so clearly, and so..as I said, better to wait for another unexpected rally, and then once these shorts finally give up, step in and take your shot. Thursday is a big day for event risk. We have already seen the volatility from the RBNZ decision, and now the market will need to digest the SNB and BOE. So keep an eye out for the Franc and Pound today. Could be a bumpy ride.

The market has a way of punishing those who think they see things so clearly. Via @joelkruger

THE DOVISH HIKE - Once this is out of the way, everyone will start to tense up for next week's most anticipated event risk in the form of the FOMC rate decision. Everyone is wondering what the Fed is going to do. The consensus at this point is that it will finally hike rates for the first time in nearly a decade. So with this all but priced in, most of the attention will be on the tone and message from the Fed. The Fed has sent a message to markets that it will be very slow with the normalization process and if this is emphasized next week, it could give traders an excuse to book profit on long US Dollar exposure. As you may have been hearing, this is expected to be a dovish hike. Whatever the case, I'm just hoping we see stocks much lower, GOLD higher and AUDNZD to the moon!

It Hasn't Even Started

I'm looking for quite a bit of USD weakness in the months ahead and right now...


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