I have been asked a few times where I expect we will see the euro drop to. I really won't know that for sure until we get there in real time. What I will look for will be oversold indicators and a swing low. There are some targets however that I think we should reach before that happens.
Remember, we are cycle traders and today is the first day of a new cycle we think. As cycle traders we are contrarians meaning we like to do the opposite of what most traders are doing. We do need a trending move to be successful but we want to be in at the beginning of the move.
Regression to the mean is the bread and butter of most professional traders. When you have a strong cyclical move like the decline that pushes price to extreme levels such as we just had with the dollar you should expect a counter move which brings price back to average. Think of it like a rubber band being stretched. At some point the natural thing for it to do is to release the energy which was created and come back to it's natural state.
I think there are two likely scenarios. First, there is a previous area of congestion where the euro could fall to which is shaded. There is also the 200 day moving average. My best guess is we will see the euro drop to the bottom of that congestion area, and by the end of the month the 200 day moving average could be about in the same spot. This would give us around a $6-7000 gain on the trade.
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