A bullish approach on the EUR/USD has been seen as long as we can remember, but at this point, the current weakness and the recent sharpness of the losses, coupled with the surprise Testimony from the Federal Reserve Bank of New York, has created concern about a break. This is always the stage where hedge funds, traders and institutions must start preparing for an exit if they expect to make money.
The most important thing to do is to review your positions. The absence of all possibility of money making moves is actually what prevents one from quitting here, so, if you are thinking of quitting, think about ways to get back in.
With the reversal in price action, there are some critical points that need to be covered. One must understand why there is a substantial change in the behaviour of the market after the news from the US and Eurozone Central Banks. Currency markets go through cyclical phases during which data are revised and traded currencies move to another level of resistance and this is exactly what happened today.
It is a fact that the global financial situation is chaotic, yet, the fear is that this might create a domino effect and major credit crisis will occur, or even worse, the trade protectionist response from the US might be withdrawn or interpreted as such, and therefore, capital controls might be put into place, which would make the transactions much more expensive. Therefore, one must take all these things into consideration before you jump out of the EuroUSD.
There are a few fundamental analysis tools that can help one to ascertain whether one should go into this currency exchange rate trade. I am not sure if one should attempt to identify the correct corrective trade, but I believe the truth is that if one can measure the stage of the reversal, then one can anticipate the next stage of the USD/JPY trend.
During the last 3 weeks or so, there have been several changes in press releases that affect the perception of the Market participants. These comments by the Fed, the ECB and the FOMC have created enormous amounts of uncertainty and the players are not sure whether to stay or go, with everyone trying to figure out the next move in the USD/JPY trend.
The Market participants are extremely doubtful as they feel that the USD may recover to its previous highs or even higher. The market is experiencing the greatest tensions over the USD after the Fed Testimony, and therefore, the interest in this market has increased by 10% over the past 24 hours, making it an excellent time to invest.
Gold is a good way to trade in today’s market, however, gold is only liquid on the day of the Fed Testimony, when it is a “self-fulfilling prophecy” because investors want to hedge their positions in the opposite direction. However, since there is a lot of uncertainty over the implications of the Testimony, the AUD/USD (AUD/JPY) and the Euro/USD (EUR/JPY) could also see a reversion to their previous levels.
Trades in this market are very difficult, but with long periods of trading, the potential for gains is big. There are more hedges available in gold than there are in stocks, yet, there are more situations that demand hedging, so, long-term investing is a huge advantage.
On the other hand, when one goes in to buy gold, one must realize that the market has been experiencing plenty of losses. One cannot expect to benefit from such losses, and one should always exercise caution and take the position only when it is clearly visible that there is a strong bullish trend in the commodity.
Today, the trend in the EUR/USD is strongly bullish and can be profitable for those who are traders who have made a sensible investment plan, based on their knowledge of this market and the profits it can deliver. Always remember to make decisions based on real money, but the word of mouth is always worth its weight in gold.