Seasonal trading patterns make this currency ETF attractive.
CurrencyShares Euro (FXE)
from Stock Trader’s Almanac
In the short fifteen year history of the euro currency, the market seems to make a bottom around the third week of October; then we see a tendency for price gains against the U.S. dollar by yearend. Many factors could be at play to explain this, such as multi-conglomerate U.S. corporations’ need to make fiscal year-end book adjustments as well as to make foreign payroll and bonuses.
The trade itself begins by going long on or about October 24 and holding until about January 2. Due to the expiration of the December futures contract, we ran the statistics using the March futures contract. Overall we have a 60.0% success rate with 9 wins and 6 losses. The best win was in 2000 with a $14,813 gain. From 2009 to 2011, European sovereign debt concerns trumped this seasonal tendency.
CurrencyShares Euro (FXE) is the top choice to execute this trade. FXE has ample assets and liquidity and a respectable option chain as well. Persistently weak European growth once again has the ECB providing stimulus. When compared to respectable growth in the U.S. and the reduction of stimulus here, it is easy to see when the euro has been falling against the U.S. dollar since May.
Up until a week ago, stochastic, relative strength and MACD indicators applied to FXE where all deeply oversold, but have since improved. Whether the ultimate euro bottom is in, is still unknown at this time however, the Fed is not likely to allow the dollar to strengthen substantially more as it will put downward pressure on inflation and dampen U.S. exports. FXE could be bought on dips below $124.00. If purchased, a stop loss of $119.50 is suggested.
Jeffrey A. Hirsch, Stock Trader’s Almanac, www.stocktradersalmanac.com, 800-762-2974, October 9, 2014