Trading with an opinion is perhaps one of the most dangerous traits of financial speculation, and yet it is one that we see time and time again, with the best example at present being the dear old euro bears. Like some punch drunk fighter who is past his better days, the euro bears continue to drag themselves off the canvas, returning for more punishment, still reeling from the last body blow which has sent them crashing to the floor. Undeterred, our brave fighter returns for more punishment, refusing to throw in the towel and admit defeat as the onslaught continues. When will they learn!
Common sense would suggest that the euro should have died long ago, hastened by the euro bears, shorting the market in ever larger size. But we all remember the words of Mario Draghi, who said in the summer of 2012 that the ECB would ‘do whatver it takes’ to protect the Eurozone from collapse. He meant what he said, and whatever our personal opinion, there is only ever one opinion that matters, and that’s the market, and the associated price action on the chart. And for euro bears right now, it is gloomy reading. For the rest of us who trade without an opinion, there is money to be made.
Volume of course is the great leveler, and if you subscribe to the methodology of volume price analysis, then you will be doing better than most at the moment. After all, the argument could be applied to equities right now, with many investors and speculators baffled at the current bullish trend. But I digress – let’s get back to the euro. The price action and associated volume last week, was yet another signal, that the EUR/USD remains firmly bullish for the time being. Whilst the early part of the week, was marked with a pause in the congestion phase between 1.3550 to the downside and 1.3620, to the upside, Thursday’s price action was key, with the pair surging higher and breaking out of this region, with rising volume, a strong signal which validated the move higher.
Friday’s price action, simply followed through, following the NFP data which came in slightly better than expected, and reflected in equity markets with bullish sentiment and in bonds with a rise in the 10 year yield to 2.88%. The EUR/USD pair finally closed the week at 1.3701. So what next for our battered euro bear prize fighters? Well no doubt they will continue to short the market, and no doubt will also continue to take further sustained punishment. The euro dollar will reverse, but not just yet.
Below, we now have a sustained platform of support in place at the 1.3620 level, and with a rising market and rising volume, this is a strong signal of further bullish momentum to come for the currency pair. The volume at price histogram on the left of the chart is also confirming this picture, with two deep areas of support now firmly in place. The first in the 1.3400 region, and the one just below the price action of last week. The next logical level for the EUR/USD is now the 1.3831 price point, last seen in October, and should this be breached with solid volume, then in 2014, we could even see the pair test the 1.4000 area once more.
So for the euro bears, it’s seconds out, and back in the ring. And if you’re a spectator in the front row – stand well back as the blood could really start flying.
By Anna Coulling