This break down in the direction of the wedge can get pretty darn ugly
Entirely possible, even likely.
I'm bullish nothing other than the dollar as a relative safe-haven.
Many months ago, maybe a year ago, I commented that I would no longer trade the Euro. Why? Too many unknowns that could result in overnight devastation of equity -- long or short.
The scenario where the relatively weak -- Greece, Spain, Italy, et al exit overnight leads to a 2 dollar Euro.
The scenario where the relatively strong -- Germany, the Netherlands, Finland, et al exit overnight to form a "Northern Euro" leads to a 50 cent Euro.
One can't rule out the possibility that one scenario or the other could be engineered in secret, while feeding the market more of the same BS. "We're working hard to fix it," blah, blah, blah, even though it's not fixable -- and then, bam -- here's the new deal. Surprise!
Either of those unexpected announcements leads to horrendous equity losses for the wrong side of it, never mind any stop one may have entered. Good luck arguing with a broker or exchange about a stop filled 5,000 ticks away.
Not a risk I'm willing to take. Yes, I've scalped a couple of hundred ticks here and there in the Euro, but it was always on small positions and only for a day or two.
The position I'm perfectly happy to take in some size and have taken for the past 11 weeks is short the Pound versus the dollar. Sold it at about 1.61.
No matter what happens to the Euro, the Pound is gonna suffer. Either result is chaotic and bad for the Pound. Continued BS to remain in the status quo is bad for the Pound.
Take a look at the weekly chart of the Pound going back to '08. I sold it at 1.61 because it looked like we've completed 4 waves down. That 4th wave on the Pound -- which took about 3.5 years to form -- looks just as choice as the long 4th wave that drove wheat up to 13 from 5 in '07-'08.
The downside on the Pound could be as low as a buck. I have no idea -- other than it wants to go lower. And it's not like it hasn't been at a buck before. Ask George Soros. But that will likely take a year or two to transpire, if at all. Which is OK, I'm a patient guy. Above 1.70, all bets are off.
Euro doesn't look good, but the Pound looks worse. I'll continue to take the lower risk trade and sleep like a baby, having no desire to be wiped out by any surprises that the likes of Merkel and the rest of the incompetent leaders in delusional Euro-land might cook up.
Edited by ..., 23 July 2012 - 05:47 AM.
As for the Pound.. it has been in the 1.5-1.6 range for the past 3 years. It may be a good position trade, but not dynamic enough for me as a trading vehicle at this point at least.
The long term chart however has some sort of a narrowing pattern that may be nearing a resolution. If it takes out that trendline from the 2009 low the action may get more interesting.
UK does have an enormous budged deficit like the US and is also running its printing presses. So its a matter of "competitive devaluation" I guess. Hard to predict.
