A Quick Euro Play
As a war with Iraq draws closer each day,
investors in the global markets are less willing to commit to any meaningful
positions, particularly in the currencies. Although implied volatility in
currency markets remains high, due to large demand for protection against future
uncertainty, the actual volatility in the currency markets has decreased over
the last two weeks.
This can be illustrated in the Bollinger Bands
(using 16 day moving average)– as two outer bands have markedly narrowed and
are now virtually horizontal. During times of decreased volatility in the
currency markets, Bollinger Bands are VERY accurate
at defining the trading range and allow for quick in-and-out trading
opportunities, especially in the European currencies.
I expect that the currencies will be held within
these tight ranges until late next week when the Turkish parliament votes
(almost a certainty) to allow US troops to launch an attack on Iraq from its
soil. And a new resolution is pushed through the UN — Bush will launch the war
regardless of whether or not it passes. As such, consider trading the European
euro or Swiss franc.
For example, in the euro, today we closed below the 16-day moving average at
1.075 and will target the lower band at 1.067(which we should hit on Monday).
So, consider buying the euro at 1.0680 (with a tight stop below). Then take profit on half the
position at 1.074 (while moving up the stop) then take profit on the other half
of the position below the upper band 1.086. This sequence of events should
happen before a war begins.