EURUSD Thesis: Are we forgetting Populism?

11:33 AM


The recent moves in the American politics has caused the EURUSD rally.

The dollar strength seen during the initial speculation of the interest rate rise. It then trended downward upon confirmation of the interest rate hike. While this makes very little sense, we can only observe (I have written more on my eToro wall here)
  
But, my thesis is that there is a dollar funding crisis and the Eurozone still faces considerable headwinds.


Fundamental - EU

 I have also been transparent on my blog about my view that the EU will dissolve at some point.

The EU French elections may be a catalyst for this.

I have but a limited understanding of the election. But Marine Le Pen, who is leading the populist movement in France has called EU as "going to die". Needless to say, she is against the EU.

François Fillon of the Republicans and Marine Le Pen of the National Front led in first-round opinion polls between November 2016 and mid-January 2017(source: Wiki). And so I expect the EUR to weaken as fear sets in leading up to April 23.

France is one of the larger economies of the EU, if they leave the EU, this could mark the end of the union.

Consider the birth of the EU was due to Margret Thatcher and the Single Market Agreement (SMA). And now Britain is leaving.

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Fundamental - US Dollar

The US dollar has been suffering at the failed passing of the healthcare bill

Look at how the SPX500 recovered from the initial dips.  The recent move in many markets may have been exagerated.

If this is true, a recovery is imminent.

I have also written a little about my US dollar strength thesis here and while I do have a few more reasons, I do not see any reason to think otherwise.

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Technical entry

The fundamentals usually get me more excited. But for this trade, the technical prove more interesting.

The DXY (or $USDollar on eToro) index has reached an important support level. A break up here would indicate we are likely to headed higher.

For the EURUSD, the 4hr chart formed a shooting star candle pattern with a bear candle following it. Another sign we are going lower.

Even with all these confirmation I will only enter this position after I see considerable consolidation. A retracement and 3 candles below the 10EMA would also be a good entry for me.

Given the risk: reward, i can afford to be patient here.

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Sentiment

Sentiment for today, especially during the Asian trading sessions has been all about the failed passing of the bill.

However, Article 50 execution is expected on Wednesday. From there we are likely going to see a change in sentiment.

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Entries

I suspect after article 50, there will be a start of a correction. I may be wrong here, and is why i prefer to wait for a consolidation to ensure that this EURUSD bull run is over.

Possible Exits

Whether of not  Marine Le Pen wins is not of great consideration to me. (but I think she will) There are too many variables to predict.

Even if I did, I wouldn't know how the market would react. It could happen like the Trump rally or it could fall. I plan on exiting at least half the position before the results, especially if we are in profits.

If the market moves away from the EUR in fear of the EU dissolving, we will test this the 1.04 levels again.

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Summary:

Short EURUSD.

Sentiment has moved to the US after the whole healthcare bill taking full view of the market.

The EU troubles have flown under the radar, but i expect it to be the centre of attention till the French elections.

This presents an intersting risk: reward for a short.

The entries and exits are not 100% clear at the moment, but i am watching out for it.

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