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Euro Futures Collapse Below 1.09. Not in? Wait


Euro futures (6E) continue the long-term decline, dropping below the 1.09 mark to a low (so far) of 1.0844 through early trading on March 6. The move lower is the latest in a decline which began in mid-2014, from a high near 1.40.

The steep declines in January, and now March,  are great opportunities for those already short to cash in. For those that aren't short, getting in near current levels isn't the highest probability play. While the Euro is in a downtrend, and the sell-off may continue into next week, the higher probability trade is waiting for a pullback.

Downtrends are composed of lower highs and lows--if shorting at a fresh low that often means having to hold the short position through a pullback before the price declines again (if it declines again). That's not efficient.

There is a long-term trendline intersecting near 1.18, although given the sharp decline in 2015 this trendline isn't relevant currently.

The 2015 trendline is relevant. It signals to look for short trades on pullbacks between 1.12 and 1.13 (trendlines should represent an area of interest, not an exact price). This also aligns with old support, now potentially resistance, provided by a consolidation breakout in February.

Figure 1. Euro FX Futures - Daily Chart

euro-1.jpg (1)

While there's a compulsion to jump in so more of the move isn't missed, wait for a valid trade setup. Allow the price to pullback, and ideally consolidate (as it did in February), then trade the shift back to the downside (like what occured on February 26). A bearish engulfing pattern (daily chart) can also be used to signal a short trade (see February 6). Once the entry is made, a stop loss goes just above the recent high that formed, and a target goes just above, or just below the most recent low. Such a setup, shoudl it occur, will be covered in futures articles.

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