Markets are Moving Today: Check Out the Eur/Usd

If I could only watch one thing to make all of my market decisions right now, it would be the Eur/Usd pair. This should not be surprising to anyone that follows the markets on a regular basis as everything has been following the dollar..and the euro. This pair represents a gauge on the overall fear involving Greece, Spain, and Portugal and it also gives you a heads up on what the risk appetite of the market is...dollar still rallies as a safe haven currency when the equity markets tumble.

Today the Eur/Usd has made new lows and the stock market is falling which is confirmation to continue to hold shorts. Here's a daily chart of the Eur/Usd:
I've made a few notes on the chart relating some of the more important things that I'm taking from it. The 2 most important things that I see, things that give me conviction to hold positions, are the fresh lows and the leveling out of the BB Width. I've found that the BB Width indicator is one of the best tools for determining continuation of a trend. When volatility kicks up, the short term BB Width rises above the 5 period average and more times than not we see follow through in the direction of the trend. When the BB Width is declining and below the 5 period average, we generally get consolidation with the potential for a short term reversal, which is what we've had lately.

So, right now, it's looking like the sell off of the Euro will continue and we'll also see the stock market sell off with it. Note that the BB Width hasn't risen above the 5 period average yet..but it has leveled and looks like it will likely cross. For now I'll be holding my long dollar and short equity positions and if the continuation is confirmed, I'll add a bit to the positions.

Anticipating what will happen and then having plans and contingency plans is the name of the game. If you make the proper plan, then it's likely that market action will not surprise you. Then if you add the ability to cut losses to the equation, you've got what it takes to trade successfully. Simple, yes. Easy to do, not exactly!

I hope everyone has a great weekend.

TLT