Here's Why You Should Continue To Short The Euro
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We’ve had great success shorting the euro against the US dollar and GBP over the past few months. After such success we have to stop and ask ourselves if we’ve come too far. Is there still good risk reward in selling the single currency?
Reasons to remain bearish on the euro:
ECB policy initiatives are likely have a direct negative impact on the single currency. The central bank is engaging in monetary easing, making the euro a viable choice as funding currency.
Furthermore, portfolio inflows into the Eurozone have tailed off, and due to the high correlation between portfolio inflows and the EUR/USD it appears there is scope for further decline. There has been a net increase in portfolio outflows from the Eurozone via the bond market and money markets. There is a risk this will become broader based, which leads us to believe there is still room for further declines. A recent report from Deutsche Bank suggests we’re already seeing high levels of equity outflows.
The structural problems facing the euro are exacerbated further by the ECB’s willingness to ease monetary policy, which makes the euro an appealing funding currency going forward, another indicator pointing south for the euro.
As a result, any rebounds in the EUR/USD are likely to present renewed selling opportunities, much like our recent trade which closed last week. Consider this when trading both the 5 minute and 4 hour power play set-ups. Short euro in some of the crosses will present nice risk reward.
Risks to this trade
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