Greece leaving the Eurozone? Markets show it. The EUR/USD trade setup.

Ever since the EUR/USD was breaking through the 1.40 mark I issued a short on this pair (see older posts). It seems to me the people of Greece had enough of the humiliation.
The overall problem is; the ripple effect it will have throughout the Eurozone and the world wide economy. Greece could be first and then maybe many more European countries. The Dow Jones lost another few hundred points today because of this news, a -297.05 to be precise. Time for a another shaky volatile market moment. This is the time you want to check the VXX (VIX) index before you make any sort of money market move, whether you are in Forex, Stock, ETF or in any other sort of trading)

As you can see at the chart above, the VXX shot up significantly, meaning we have to use extra caution for any trade that we may have in mind. The VIX is trading high at the moment, very high.

Now lets see what the forex trade looks like;

(click image for a larger version)

As always, we wonder, with this significant drop in price point, is the EUR/USD cheap to buy, or should we wait until it goes any lower? And if it does would a short position be more appropriate? A big fundamental chance has happened today to the currency pair and had such an impact that pretty much we should see what the markets decide what the right price should be - in other words, at the moment we rely heavily on technical analysis. And what does technical analysis show us at the moment? A severely oversold market that's for sure; as a matter of fact (and who knew that I would mention this) the EUR/USD is pretty cheap at the moment. I have a bullish outlook; all the way until the 1.40 mark again. So it's a buy past the 1.37 mark. The remarkle drop (shown in the yellow circle) made me come to this conclusion that a little bit too much panic was into play here.

Approaching the Euro trade

Just as the Wall Street Journal wrote an article two days ago about the Euro steadily rising to $1.50 according to some professional analysts, the opposite happened instead. Aggressive selling of the Euro against the dollar occurred due to worries of the European debt crisis.
I've been monitoring this trade closely from the beginning of the month (read previous posts) and speculated that sooner or later the currency pair was bound to drop (finding a bottom), and found it interesting that most investors were so optimistic about the Euro, even though Portugal, Greece, Spain, Ireland and Italy are in some serious trouble. It didn't make any sense to me, and indeed the 'expected' (to me) happened. A little later then anticipated but it happened. The value of the Euro dropped over 1.35% in a matter of a week. High volatility means an increase in risk, but also an increase in money making opportunities.
Now is the time to look for a market bottom. A sharp plunge like that likely means an major upswing is brewing. And in a trade like this, like with any trade you want to get in when the price is low.
If indeed the majority of the analysts are bullish on this trade, and given the fact that the US Dollar continues to weaken and a possibility of a downgrade in the credit rating of the S&P from AAA status. Also, most technical indicaters are hinting towards a strong buy, it's time to buy the Euro, or take a bullish position in the FXE trust. (if 1.50 is a target, 1.42 seems a bargain to me)

The Elliot Wave seems to forming the 4th wave, with a target of 1.45.

EUR/USD broke through 1.34, is 1.35 next?

I made 35 pips last night, entering a long position as soon as the EUR/USD broke through the psychological level of 1.34. Unfortunately I set my stop loss too tight on this one, I sold the pair at 1.3433. At one point it went well over 1.35. A common issue I experience in trading Forex, skit outs under my tight stop loss level and I'm out well over 70 pips. Next trade a little looser perhaps? Although I have a guaranteed profit of 30+ pips, it still painful to watch on 'what could have been' a 100 pip profitable trade.

Last night I decided to go long this pair as soon as there was a breakout above 1.34. No other technical indicators or oscillators had to confirm this. The question now is, will the pair continue its uptrend towards 1.35? Looking at the chart I think there is a good chance it will. I'm keeping a close eye on this pair, soon entering another long position with a target of 1.3550 and a greater stop loss of 20 pips. Any input of where you think this pair is headed to?

Euro forecast for the first quarter of the year

In the beginning of the week I received a few messages and emails about my take on the Euro outlook for the short- mid term trade, probably since I haven't been really active on the forex board like usually. I have been taking a look on this pair in particular, the EUR/USD, pretty much a staple for pretty much all trades involving the EUR. To answer this question I'd like to refer to the take of other analysts, not just me alone, however I'll still give my take on this pair a little later on in this article.
First off, we need to know where we stand now with the EUR/USD to conclude the standing of the Euro currency in the overall picture. I always like to start off with technical analysis before I enter any trade.
This is the chart so far:

As you can see it goes back 6 months of trading. Into January we see the pair break through it's bollinger bands, not a pretty picture so far. This has to do with investors, traders and investment banks losing confidence that the Euro will survive as a whole. Portugal, Greece, Spain, Ireland, Italy and even Belgium are having difficulties with their credit rating. Germany is fed up of being the strong player in the field and take on responsibly for countries mentioned before. The fate of the Euro is being questioned time after time and already the Euro is vanishing from the Indian forex market and contracts are written in US dollars again. (See story on this topic.)
Now the opinions of key analysts in the field. Fxstreet.com, one of my favorite websites to go to, recently posted their take on this pair, here are their results;

It turns out most analysts watching this pair are pretty bearish, and I don't blame them. My opinion is that the pair will trade under 1.25 and will only sink further as tensions rise around the fate of the currency. There are a few scenarios that can happen. The first one being that countries like Greece, Spain, Ireland, Italy, Portugal and Belgium will drop out of the Eurozone are convert back to their old currencies before the Euro was instated. The second scenario being that countries like Germany, The Netherlands etc (countries with good credit ratings) will drop out the Eurozone and convert back to their original currencies like the D-Mark, Guilder, etc. The third scenario being that the Euro will be dropped altogether by all members of the Eurozone and convert their currencies to the way they were before the Euro, or a 4th scenario and the vision of the Euro by the ECB, that the Euro will survive after tough sanctions and restrictions to it members. Either way, it's outlook isn't too rosy. My advice is to use caution on this pair since it can spike up in the short term. Over the long run, I am pretty bearish myself and I consider any trader that is currently short this pair above 1.31 pretty lucky.