What's wrong with EURUSD?
by, 4th-November-2009 at 10:47 AM (984 Views)
EURUSD: the most liquid 'product' on the whole world
EURUSD is the world's most popular and most heavily traded currency pair. Also, we can say that this is the most liquid 'product' all over the world. People sell and buy much more EURUSD than any other product including bread. Of the estimated $3.98 trillion daily global turnover EURUSD traded approx. 27% . It is fully understandable that we, currency traders, pay close attention to it.
In the last couple of months EURUSD rallied up to 1.5000 and a little bit more. Individual traders laughed at USD being weak against the 'strong' EURO. In contrast, big investors haven't been so happy for awhile with this and sitting out on the fence. Things can be seen from many point of view, let's try this:
Who's interested in killing USD by EUR?
The biggest economy in EU is obviously Germany. Also, we all know that Germany is one of the world's biggest export country. At the first sight it means that strong EUR is very favourable for Germany; but actually not now. Fact is fact as EURUSD price fly high German economists are worrying about their future.
USA is still the biggest market for German industrial products - just think about German cars. Nowadays, when the exchange rate is very high USA doesn't want to buy such expensive cars like BMW, AUDI and Mercedes and pay even more for them. Those expensive cars become extravagant for USA. What does that mean for Germany? Obviously it causes less orders and less profit for them. Where does it lead to? Sooner or later they have to dismiss their employees because there is no job. Consequently the unemployment rate will raise, retail sales will decrease, consumer confident will drop down and the whole economy starts slowing down. Is that what they wanted? Is that so funny? I don't think so.
Flip side of the coin
People all around the world found USA products reasonable 'cheap' compare to their prices because of the exchange rate. For this very reason they are willing to order stuff from USA through the Internet. It is funny but USA retail has increased lately; despite of the 'recession'. What does it mean to them? More retail, more profit, more job, increasing economy, yeah?
Psychological resistance: 1.5000
Traders who saw the massive up trend went LONG EURUSD. Most of them are fully aware that 1.500 have always been and still is a psychological level for this currency pair so they set their Target Profit level around 1.5000. We work in the same pattern: wherever you buy EURUSD at 1.3983 or at 1.4297, it doesn't really matter you will get out at very last at 1.5000, won't you? You don't want to determine such a silly price like 1.4863 or 1.4987, do you? (unless you have a specified target there). We all try to target round numbers and 1.5000 seems to be a perfect one. So when optimistic buyers push EURUSD's price up to that level they find a massive selling pressure there and most likely they get out of that trade - meanings they sell their positions and the price will collapse. No more buyers but many sellers at that level. That's the way we 'establish' support and resistance levels.
(By the time I am writing this post EURUSD has collapsed around 350 pip. If you have a look at my Twitter you can see that I already predicted that 6 days ago.) Did you trade that opportunity?
Nothing wrong with EURUSD
Nothing wrong with EURUSD but this price action was regular and predictable. Sometime it's a good idea to think out of the box; just sit back a little bit further from your screen and 'see the Matrix'. Read between the lines when you watch economical news; see the relation between the human behavior and the price action.
I am a technical trader; I make my decisions based on my technical analysis. On the other hand I found it useful to be aware the basic fundamentals as they can help me understand the price movements and support my technical decision.
Chartist and Professional Trader