Note: Below is a guest post courtesy of Michael Trinkle. Michael represents ForexTraders.com ~ ForexTraders.com is an educational/informative resource center for the currency exchange market. We help people learn, analyze and execute forex trading by providing them with the necessary tools and information needed to be successful.
Lately, almost every financial news network has market analysts talking about the currency markets. At the moment the future of the Euro Dollar is the number one debate. Some say that the European Union needs to exist for efficient trade to take place more freely throughout the E.U. Others have suggested that Greece and the other countries in trouble default on their debt and start anew, without being part of the E.U. If you are a trader looking to play the Euro currency without buying the EUR/USD pair, a good exchange traded fund that will allow you to do this is the Currency Shares Euro Trust, ticker symbol (FXE).
The FXE trades on all the major electronic exchanges. With an average three month volume of over 1.5 million shares traded daily there is more then enough liquidity for traders to trade large orders of this product intraday. The FXE will mimic the price movements of the EUR/USD pair that forex traders would trade, so if as an investor you feel that the Euro will rise buying shares of this ETF will allow you to profit from its appreciation. Likewise if the Euro Falls the ETF will lose value.
At the moment the FXE has been trading between a high of 125.66 and a low of 121.27 over the past week. As you can see by the charts the Euro has been depreciating against the U.S. Dollar since the beginning of the year. In the past month the Greek debt crisis has led to a steeper selloff, bringing more uncertainty into all financial markets.
Traders should be watching the charts in the next few weeks to see if the Euro will regain its footing or fall further. The increased volume that you can see in the histogram on the bottom of the chart indicates that more people have been trading this ETF in the past few weeks. If Greece, Spain and Portugal announce that they are still having debt issues, the Euro and the FXE will fall further.
There is no support below the 121.27 mark that we tested on May 18th, so a price break below that level on higher volume will indicate another leg down for the price of the Euro. The overall trend has been down since the beginning of the year, making it more probable that we will continue lower. There would need to be a major news story about the Germans backing the future of the European Union and Euro as a currency for it to start to appreciate. The German economy and its strong GDP is the driving force the holds the E.U. together. Germany has the biggest economy in Europe and since they are the most financially stable, they will have to help the other countries with loans to cover their budget shortfalls.
It is never easy for politicians to get their citizens to lend money to other countries that simply do not try and get their budgets under control. Greece is in the process of trying to change their socialistic style of government. As we all can see from the riots on television, this is not going to be an easy transition. If the various governments that comprise the E.U. can get their debt under control before they ask for money to bail them out the Euro has a chance to survive. If we as investors see little progress being made, they Euro will continue to fall. As a trader the best way to profit from the falling price of the Euro is to initiate a short position using the FXE exchange traded fund.FXE Offers Liquidity for Individual Traders