We’ve opened a bearish trade on CurrencyShares Euro Trust (FXE). Now that the citizens of Greece have voted to reject the old bailout terms that were being imposed by the Troika — the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF) — European leaders are scrambling to find a solution to the Greek impasse. At this point, we anticipate any solution is going to have a negative impact on the value of the euro, which should push FXE lower.
Here are a few potential scenarios: 1) If Greece leaves the euro, it could stoke contagion concerns about other countries leaving the euro, which would push the euro lower; 2) if the ECB decides to support Greece and the Eurozone through enhanced quantitative easing (QE), which would devalue the euro and push it lower; 3) if creditors decide to take a haircut on Greek debt, it too could stoke contagion concerns of other countries demanding cuts on their debt, which would destabilize the euro and push it lower.
On top of all that, FXE just completed a head-and-shoulders continuation pattern by breaking below the up-trending support level that began at the low in mid-March, served as support again in mid-April and then again in late-May before being broken Tuesday. We are watching the next support level just above $106, but we wouldn’t be surprised to see FXE drop back down toward $104.
Buy to open the FXE August 106 Puts (FXE150821P00106000) for a maximum price of $1.55.
We’ll be watching for FXE to drop to the $106 level to decide when to take profits, and we don’t typically use stop losses, as they can prematurely take out of viable positions. But we’ll let you know when we exit the position.
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