Todays Big Stock: CurrencyShares Euro Trust (NYSE: FXE)

With all the talk about Greece and European debt, everyone seems to have a take on the future direction of the euro.  Well, as any of you that follow my newsletters already know, I actually like to follow the US dollar and the euro from time to time. Whenever there’s a potential trade to be made I like to highlight it here in my articles.

The FXE exchange trade fund (ETF) is a trading vehicle that gives investors a way to buy or short the euro without actually buying/shorting the currency. Please review the chart of the FXE, which is the Currency Shares Euro Trust ETF, with my added notations:

First, I’d like you to notice the Symmetrical Triangle (ST) pattern (blue) that has formed on the FXE since the beginning of May. This pattern is created from a down trending resistance that converges with an up trending support. Next, you will see that $140 has been an important level of both support and resistance for the FXE (red).

If the FXE were to break out through the ST resistance, the FXE should be headed higher. Or, if the FXE were to break through the bottom support of the ST, that could be the “shot across the bow” for the FXE to move lower.  A break of that support would bring the $140 level into focus and a break of that level would most likely confirm the FXE’s trend towards lower prices.

The Tale of the Tape: Right now the FXE is sandwiched between the formation of a Symmetrical Triangle’s support and resistance trend lines. If the FXE were to break above the resistance, a long position in FXE (or euro) might be a great trade. On the contrary, if the FXE were to break below its support, shorting the FXE (or euro) would be the ideal trade. Also, waiting for a second break of support at $140 would most likely make a short position a higher probability trade.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT