It is rare that i touch on currency futures as this site is an authority on forex and my specialty is in futures/commodities. However, the euro is an active, liquid futures contract just like a few other currency futures.
Much has been written on the driving forces behind the US dollar’s strength, as well as implications for the global economy. What I am concerned with is the short-to-medium term price action and whether I can find a solid trade (i.e. one whose risk/reward ratio I feel comfortable with and have a game plan for).
Looking at the monthly chart of the euro currency futures, I see this market coming into a support zone between current prices (118.37 as of Wednesday January 7th, 2015) and the lows from November-December 2005 at 116.61.
Currency trends can sometimes last longer than other futures, and I personally try not to “fish for bottoms or tops” but, like all markets, it is rare that a contract will go straight down or up without any relief, at least temporarily, and this is what I am looking for.
Knowing that there is at least chart support on the monthly chart, I now look at shorter time frames, i.e. weekly and daily charts. The picture I see is not a good one for the euro but I do see an opportunity for a quick counter-trend trade if we can get a close above 119.10.
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I believe that this market is short term oversold (not so on the longer term time frames) but in order not to fight the trend, I will look for price exhaustion, followed by price confirmation of a short covering (where traders who are short cover positions by buying the contract and close their position).
In this case I will not enter a long trade unless the market breaks above my price. I can either wait for this to happen and then look for entry level or I can place a buy stop to initiate a long position.
If and when this will take place, I will look at the recent lows and place a sell stop below. If the market continues to make new lows on a daily basis I will cancel my plan and will re-asses.
The strategy above may be a bit more advanced for some users and definitely carries a high risk. If you need help creating a trading plan, visit our broker assist services.
Disclaimer – Trading futures, options on futures and retail off-exchange foreign-currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more of your initial investment. Opinions, market data and recommendations are subject to change at any time.
About Ilan Levy-Mayer
Ilan Levy-Mayer has been a commodities broker for over 16 years and holds an MBA in finance and marketing from the Hebrew University in Jerusalem. Ilan is currently the vice president and a senior futures broker overseeing Online Future Trading Platforms and Commodity Futures Trading systems at Cannon Trading Company.