A Currency Trade Idea Inspired by Super Mario Draghi

11/20/2017 1:37 pm EST

Focus: MARKETS

Landon Whaley

Editor, Gravitational Edge

Trade idea: As long as FXE trades below $116.28, then new short trade ideas can be initiated between $113.75 and $115.70. Depending on how much room you want this trade to move, use a risk price between $114.59 and $116.28, suggests Landon Whaley of Focus Market Trader.

The Guggenheim CurrencyShares Euro Trust (FXE) gained 1.1% in the week ending November 17, pushing its year to date gain to 11.2%.

In a keynote speech at the Frankfurt European Business Congress, Super Mario Draghi, touted that “The euro area is in the midst of solid economic expansion. From the ECB’s perspective, we have increasing confidence that the recovery is robust, and that this momentum will continue going forward.”

While the euro rallied on the comments, investors are continuing to overlook the ultimate factor that will drive Super Mario’s policy slant, inflation.

Inflation across the Eurozone slowed in October, which is probably why Draghi reminded the crowd in Frankfurt that the ECB’s asset purchases could be extended beyond September 2018 if there has not been a “sustained adjustment in the path of inflation.”

Draghi must have both growth and inflation improving, or at elevated levels, before he can take his foot off the easing pedal. This means that ECB policy will remain dovishly tilted and bearish for the euro.

I couldn’t be more pleased with last week’s 100 basis point gain because it puts a new short trade idea squarely in our crosshairs.

chart

Trade idea

As long as FXE trades below $116.28, then new short trade ideas can be initiated between $113.75 and $115.70. Depending on how much room you want this trade idea to move, use a risk price between $114.59 and $116.28. Your risk price line in the sand is $116.28, if FXE touches that price, even for a second, then you should exit any open trades. If the trade moves in your favor, then you could consider using the price range between $111.58 and $110.75 as your profit target.

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