Phase one complete in my strategy to buy the euro for the long-term
These last couple of months I've been mainly sitting on my hands trading wise. For sometime I've been waiting for the right time to buy both the pound and the euro for a long-term trade. While the pound is still a work in progress, one element of the EURUSD long trade was the ECB. Now that's passed, and gone pretty much how I was hoping, I'm starting to buy in.
My view has been that at some point the ECB won't be able to ignore the path of the fundamentals. There's certainly no ignoring the trend in inflation, low though it remains, the same for other data points. I'm not proclaiming boom times for Europe but what is happening is that we're moving further away from the low levels that came from the crisis. Now we're seeing real green shoots not more weeds. That's what I want to trade.
The key to the trade is getting in early but only after certain conditions have been met. The ECB meeting was one, the next is the FOMC. These are/will be two big defining events and one's that I feel could mark a significant bottom for the euro. Just as I can't see the ECB going deeper down the QE rabbit hole, I can't see the Fed giving us a hawkish hike. I'm going to use these two meeting to set me up as I don't see much more downside once they're over. Initially I'm looking for a similar reaction in USD to the hike last year but not as big. The market is always trading what's to come and once it gets what it wants, it often takes profit then moves on to the next thing. I believe that next thing is the euro.
Why do I wait for these events?
I need the confirmation for my strategy. I need to know that I'm not just buying in willy nilly and then finding myself well offside and then having to face the added risk from these meetings. The ECB today gave me a level nearly 200 pips better to buy it at. It may still go down, and I expect it too but in my mind I've still made that saving and reduced my risk by a good chunk too. I'll play the FOMC the same way.
What levels am I looking to buy at?
I took a small position at market at 1.0656 earlier(too soon as usual, that's my impatience at work). I'm now looking down to 1.0500 and the 2016 lows. My next buy will be around 1.0550 and 1.0500, then down towards the 1.0460 lows. I'll probably spread what I would normally buy at one of those level one their own and spread it between them. My prior wide look at the euro highlighted the area from 1.05 down to 1.03, so if that low end breaks, That's where I'll have my first assessment. If I'm happy for the reasons why we're there, I'll continue on if it heads towards parity, which will be the next big assessment point.
What's my target?
My first target is not to lose money. My second target is not to lose too much money before I can make some profit. Easier said than done obviously. I'm not interested in picking numbers out of the air as profit targets because I don't trade that way. What I'll be doing is watching how the price reacts at certain levels I'll highlight on the way up (and conversely on the way down). My final target will be where I decide to close the last of the positions.
I don't know where the price will be tomorrow, let alone a year's time so the only thing to guide this trade is the fundamentals, the technicals and ultimately the PA. There's no point in me saying I'm hoping for 1.40 when there's a thousand technical levels in the way and need overcoming. All I'm ever concerned about is what can go wrong with the trade, not what can go right. Deal with that and the rest should take care of itself.
What could go wrong?
That's pretty easy to define. The Eurozone economy and inflation could go backwards. The US economy could accelerate. If that happens then getting out and taking a loss is the only choice. I'm sure it won't be as black and white as that, it never is, so navigating the grey is what I'll have to do day by day, week by week, month by month. I'll be watching the data and feeling the sentiment and reacting accordingly.
Whatever happens to the trade there's one important factor to consider, and it's something every trader should consider, and that is that I'm am prepared to lose what I am going to stake on this trade. When I trade long-term I'm prepared to risk a bit more than normal but nothing excessive. I will know what I may lose from the get go, and I will be prepared for that. There will be no shocks, no 'deer in the headlights' moments, no "what now?" questions if I go offside. I'll know where I want to get in, and I'll know where I'll throw in the towel. I may win, I may lose, that's trading but at all stages of the trade I'll be in control of it, not it in control of me. If I avoid the long road to ruin, I'll be a happy man at the end ;-)
