At the time of writing, the Euro has risen against the Dollar and is standing at 1.2355 but this rise is unlikely to last and will give traders an excellent low risk high reward shorting opportunity. Let’s look at the reasons for the rise, why the Euro should fall and how to get into the market.

The bearish fundamentals behind the Euro’s fall are well known with sluggish growth and many countries suffering from huge levels of debt with Greece being the country which has been in the news most but there are many others. The rally is on, so what’s behind it?

Markets move to the fundamentals long term but move to sentiment in the short term and the fact is there are just to many speculators short the Euro and to see this all you have to look at is the free CFTC Commodity Futures Trading Commission data which shows speculators, boosted their bets short against the Euro in the week ended June 8, to just below record levels.

95% of speculators lose money and these over leveraged speculators need to be taken out the market, before the Euro can fall again and we are seeing this occur now. Prices have breached the 1.2300 level and these weak speculative shorts are being taken out on stop. Once their stops have been picked off, the oversold condition will be corrected and the Euro should start to fall again, in line with the bearish fundamentals.

To time your move use momentum indicators combined with chart resistance; a good indicator to use is the stochastic which we have discussed in other articles. You can overlay this indicator on any free chart service and you will see it pointing up supporting Euro strength. You now need to watch them diverge from price action and turn down into resistance. There is firm resistance at 1.26 and prices should top out between current levels and this strong level of resistance.

The stochastic is a very effective indicator and you will notice its moving up to overbought levels now which warns of a correction and you can use this indicator as a trigger to get short, if upside momentum wanes and a cross with bearish divergence occurs.

As soon as momentum starts to fall and diverge from price look to get short and look for a move back to the lows. The Euro has been in a great down trend since the top at 1.50 and could run to par, While there will be short sharp rallies to correct a bearish extreme, like the one we have now, the long term trend is down and new lows are expected.

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