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Using The Eurozone Crisis to Make Money with The EURUSD

By Alexander
In Forex News Trading
Nov 10th, 2011

The crisis in the Eurozone can actually be traced back to the 2008 global financial crisis. Back then, the eyes of the world were mostly on the US and the UK, as these two economies seemed to be the worst hit. It took two more years for the situation in the Eurozone to begin to unravel.

First, Greece’s sovereign debt crisis became market news in April 2010 and kept the markets busy for most of 2010. Then Ireland came on board, and the shock waves of what was playing out hit the Euro pretty badly. Look at the chart for the EURUSD in November 2010 as investors panicked and offloaded their Euro holdings in a hurry.

Eurozone crisis - EURUSD in November 2010

Notice how in November 2010 as a result of the Irish debt crisis, the Euro crashed 1,340 pips against the US Dollar, a truly remarkable drop for a currency pair with such high liquidity.

Greece has stayed in the news since then, and anytime Greece pops up in the news, the Euro takes the fall. Look at another example of how Greece put the Euro under pressure sometime in early September 2011, when the news wires were abuzz of a possible default by Greece in its debt obligations.

Eurozone crisis: Influence of Greece

How do you put this to your advantage? The answer is pretty simple. Portugal, Spain and Italy have all joined the bandwagon of countries that are in financial trouble. With the Libyan civil war over and the pressure on oil prices and the USD faded, the currency to watch in the EURUSD pairing is the Euro.

Presently, there are concerted efforts by the healthier Eurozone economies led by Germany, along with the European Central Bank and the International Monetary Fund (IMF) led by Christine Lagarde (a former French finance minister) to contain the contagion and prevent any more negative effects on the EUR and the Eurozone in general.

As cost-cutting measures were proposed and implemented while the frontiers of the bailout fund were extended, it seemed that the crisis was about to come to an end. But a stunning flow of events this week, chief among them the proposed referendum by Greece on the bailout issue, has led the markets to believe that a resolution of the problem is still far off.

As the weeks unfold, it is pertinent for traders who want to trade the EURUSD to keep a focus on what is playing out in the Eurozone at the moment. There will be lots of trading opportunities. But even if you know what the news is going to do to the Euro, you have to know how to get into the trade.

There is a popular saying in the forex market:

“Trigger fundamentally, enter technically”

The fundamental trigger involves knowing what the news will do to the currency pair, and the technical entry is made by using any of the technical strategies and indicators to pinpoint the exact entry. This will prevent you from making the right entry at the wrong time. Have you ever had the experience where you made a trade entry which looked to be in the right direction, only to see the price action retrace to take out your stops, before resuming the move to what would have been your profit target? It can be frustrating indeed, and that is a clear case of the correct fundamental trigger but the wrong technical entry.

Before trading, determine for your timezone the best Forex trading hours and days and learn when to trade and when not to trade.

To conclude, you can make tons of money trading the EURUSD based on what is coming out of the Eurozone. But you have to play it right by understanding which direction the news is pointing to, and then getting into the trade at the right time.

P.S.: Find out more about the future of the US dollar.


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3 Responses to “Using The Eurozone Crisis to Make Money with The EURUSD”

  1. Undoubtedly the Eurozone participants were patting themselves on the back in 2008 thinking the problem was an Anglo-Saxon one. But that pigeon has well and truly come home to roost now.

    The Eurozone crisis is one of fundamental control, as I wrote on the MoneyPrinciple blog. There is no control over individual country budgets and given the past history of the EU, it is unlikely that effective political control will be wrenched from the national politicians within sensible time frames.

    They are all at it – Germany actually is the worst really because although the perception is of Germany propping up the southern states, in fact it is buying them up and enjoying a competitive exchange rate at the same time which keeps their unemployment down and industries busy.

    As far as Forex is concerned, you are probably right that this is a good opportunity for high frequency traders to make a killing on the stochastic movements in exchange rates. I have some comments on HFT on your most recent post on scalping…

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