EUR/USD Shorts Unwind, Wrong Time to be Bearish on US Dollar-COT Report Here’s a note from someone who has been investing for a while: EUR/USD Shorts Unwind, Wrong Time to be Bearish on US Dollar-COT Report: Here’s a note from someone who has been investing for a while: I’ve been studying currencies and Forex for a long time. And as I’ve studied more, I’ve noticed that while many are concerned about EUR/USD Shorts at present, I believe that if you look deeper, you’ll find that it is in fact a misnomer, particularly when you consider that the USD index itself has been steadily increasing for over five years now. The weakness of the Yen is no secret.
Even considering the overall weakness of the market, I’d say it is a bit odd to see the European currency weaken versus the US dollar at this time of year. Furthermore, there is a very strong correlation between the strength of EUR/USD and the strength of the US Dollar index.
Indeed, just because a few of the Euro leaders have seen the writing on the wall, doesn’t mean they are about to jump off a bridge! There is a very strong correlation between the strength of EUR/USD and the strength of the US Dollar index. And yet, despite the strong correlation, it would be foolish not to continue to be concerned about currency strength and perhaps a sliver of pessimism does not hurt anything?
DrBeachcombing, I see your point of view. And I agree that it is sometimes difficult to tell when markets are entering into a bear trap and when they are entering into a bullish period. One should also remember that economies in Europe tend to be just as important as America’s, so a negative development in Europe can also reverberate through our economic sector.
Still, I am not a genius, and I am not afraid to admit that I am a little worried about the European economic data, because the eurozone is very much a much bigger area. I will not be surprised to see the strength of the Euro weaken somewhat before the end of the year, and then the Bank of England Governor will likely be forced to take action, by using monetary policy, which we have all grown to expect.
Still, DrBeachcombing, I have no idea what you mean by the term “misnomer”. It appears that your definition of ‘misnomer’ is probably different than mine. Why would I make up a word, or say that it is a misnomer?
In fact, I believe that the strength of the Euro has no bearing on the US Dollar and indeed I think that the strength of the Euro is mostly caused by weakness in the Dollar. After all, if there was any correlation between the strength of the Dollar and the strength of the Euro, then the latter would not be weakening as it is right now. Thus, I would be unable to make the same point, with the same argument. Indeed, I guess we could call that a self-fulfilling prophecy, with much more certainty.
Indeed, my point here is simply that you shouldn’t be bearish on the Euro at this time, since it has been around the same strength as the Dollar for over five years, and the only reason why it was last week was due to all the political turmoil and economic depression in Europe. Again, I understand that you probably have some theories about this, but again, that is fine, so long as you don’t suggest that I am a brilliant economist and I could see it all coming.
We should be very careful when it comes to interpreting the nature of the business cycle and identifying the right time to be bearish on something. The problem is that, while everyone wants to be positive, people tend to get overly anxious, and so they do not listen to good advice, and thus they buy high and sell low.
This is true, however, when you are taking the opposite stance and you purchase bearish measures to sell, then you will be extremely effective. and your trading strategy will be successful. More likely than not, you will be making money on your trades!