(UPDATE on 1-24-2011: Please see the comments below this post. This was a decent place to trade against the Euro, but the dollar reversed and failed support, so the trade was exited at a small loss. If you follow your stops, you will likely do well over time; if you ignore stops, you can suffer deep losses while clinging to “being right.”)
The Euro did close above the first market timing stop I suggested could hold if you wanted to use a fairly tight stop on the trade, 1.3497, but then attempted a breakout above the recent high of 1.3537 and failed.
It is your call as to whether you stay in the trade until the second market timing stop (1.3537) gives way and by how much. Currencies are not unlike stocks in that the market will often test obvious numbers and appear to gain strength, only to reverse and fail.
So which is it? Is the breakdown in the US dollar a false breakdown or is the Euro rally in the overnight market the true direction? The market will be answering this soon and you’ll have to make your own decision as to where you believe the trade has been proven wrong. I may simply use a percentage stop on the trade given the failure of the last breakout, which gives the trade a little, but not much more room in which to work. If I’m wrong, I’ll exit with a small loss rather than seeking to be right. Read my webpage on Fear and Greed to understand the emotions of investing, the number one enemies of success.
If this trade does work out, the first downside target for the Euro is 1.3243.
As for US stocks this morning, there is a little blip up that may be squashed by noon. Markets do not usually go straight down and I feel the sell-off has more to go. I’ll comment on sentiment this week later in the day.
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Standard Disclaimer: Remember, it’s your money and your decision as to how to invest it.