I called two big movements in the euro

Big profits have been made by being bullish on the euro, says John C Burford. But now it's time to trade from the bear side.

Sometimes, the gods smile on a trader most benevolently and I feel particularly blessed this week. Not only did I take a huge 1,500-pip profit out of my long EUR/USD trade last Friday as I outlined in Monday's post, but I immediately went short on Monday and that trade is also racking up big gains. It really doesn't get much better than this.

In fact, Monday's post was titled: "I've made big profits going long the euro but now you could make money the other way". So why was I confident money could now be made by shorting the euro on Monday? I was bullish last week; why am I now bearish?

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Trader sentiment changed and so did mine

Recall way back in March when the dollar index was poking above the 100 level, bullish dollar sentiment was the mirror opposite over 90% bulls. The euro hardly had a friend! That was when received wisdom had it that the dollar was on its way to the moon. The euro appeared doomed for all of the well-known reasons, and the dollar was in great demand and hitting the mediaheadlines (always a warning sign!).


Chart courtesy www.elliottwave.com

Advertisement - Article continues below

Demand was stoked by the large interest rate differential between the euro and the dollar. Many sovereign eurozone bonds were yielding a negative interest rate, while the T-bonds were at least yielding a positive 2.5% giving a wide spread in favour of the dollar. Bond investors were switching out of the euro to the dollar.

But for forex traders, this was the worst possible time to do that. With the dollar over-loved, further gains were highly unlikely, and when sentiment suddenly reversed, the euro found itself in the mother of all short squeezes. I confess, I love to trade short squeezes!

In just two months, with dollar bullish sentiment having collapsed to the floor at a near-record low of 9%, the market was ripe for a huge reversal.

When my charts matched the sentiment, it was time to go short

negative-momentum divergence


I like to see this negative-momentum divergence between the highs of the final wave 5 and the long and strong wave 3. In fact, that is a normal feature of the motive five up: fifth and final waves are usually weaker than the third wave.

Combined with the extreme sentiment situation, that added up to one thing: an imminent decline and I was ready to jump on board.

Advertisement - Article continues below

Before I did that, I needed a clear signal that the market wanted to move down and I got it. I had drawn a trendline (the green line on the chart below) and set my sell top just under that line and I was short at the 113.80 area as the market fell through my stop.


That was a pretty aggressive entry. I could have set my sell-stop just below the lower (brown) tramline at the 1.1280 area. That was a more reliable entry. But I had confidence, given the sentiment picture, that the move down would be direct with few prisoners taken.

And so it proved! In less than two days, the market has made it to my first target at the meeting of the Fibonacci 38% support and T3. Remember, this was the target I had set on Monday before the decline.


Naturally, if you are trading my split-bet strategy, this target is an excellent place to take a short-term profit of around 300 pips. On some spread betting platforms, that is a profit of $3,000 for every £1 bet. Not bad.

But now the market is entering solid chart support from the congestion zone in late March/early April. It has been straight down so far, but I expect any further declines will be met with counter-trend rallies and will be much more difficult to trade.

But the easy' money is in the bank. Now I can add that 300 pips to the previous 1,500-pip campaign and I still have an open profitable trade working. Now I can move my protective stop on the remaining open short position to break-even.

Advertisement - Article continues below

So even if the gods stop smiling on me, I can walk away with a very satisfactory result.



Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Share tips

How my 2019 spreadbetting tips fared

Matthew Partridge reviews performance of his 2019 spreadbetting tips. This year’s winners include Bellway, JD Sports and Taylor Wimpey.
17 Dec 2019
Spread betting

Betting on politics: some safe Labour bets

Matthew Partridge outlines a few flutters on what should be safe Labour seats in the general election.
10 Dec 2019
Spread betting

DS Smith will deliver: here's how to play the share price

Packaging group DS Smith is profiting from the online retail boom. Matthew Partridge explains how traders can play the share price.
3 Dec 2019

Most Popular

House prices

The biggest risk facing the UK housing market right now

For house prices to stagnate or even fall would be healthy for the property market, says John Stepek. But there is a distinct danger that isn't going …
17 Feb 2020
UK Economy

How the BBC can survive the end of the TV licence

The TV licence that funds the BBC is looking way past its sell-by date, says Matthew Lynn. Here's how it could survive without it
16 Feb 2020

Money Minute Monday 17 February: good news ahead for the UK economy?

Today's Money Minute looks to a week in which we get the latest employment and inflation numbers, plus retail figures for January and a slew of eurozo…
17 Feb 2020

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019