No, I am not saying that because of Greek stocks’ falling prices, EUR/USD is expected to dive as well. Although that was the case a year ago, this time the trendline drawn on the EUR/USD chart indicates the 12-month uptrend, while Greek General Index has already gone south of the 200-day moving average. A likely breakdown below 800 points will hit a lot of stop loss orders, sending the Greek stock market again to the bottom. Would that be a leading indicator for Euro?
Well, yes and no. Yes, because a troubled stock market of an EU member is a sign for more turmoil to the European financial crisis and subsequently disturbances in Euro charts. No, because – let’s face it, Greek economy doesn’t have the magnitude to shake off bigger European economies. Shares of companies included in the General Index trade well below 30 euros, plenty of which are regarded as penny stocks trading for as low as €0.23! Only 10 stocks in the Greek stock market has a capitalization more than 1 billion euros at the time of writing, reaching up to 7B (Coca Cola HBC AG)!
Euro is going up, Greek stocks going down?
First of all I am examining the EUR/USD chart, meaning that bad economic news for US will have a positive effect on Euro, which might absorb the consequence of a diving Greek stock market. But how can we be sure that Greek shares are going down?
Obviously we are not (yet) since the support level at 800 points may be providing a good entry for long positions. As long as the support level is holding up, the 200-day moving average is the only worrying indicator we should be concerned of. RSI indicates oversold conditions as well. However I am betting there’s a bigger chance that eventually General Index will penetrate support, than bouncing off and resuming uptrend.
Over to the EUR/USD weekly chart I have drawn 3 trading channels dated back to 2010. We can see an uptrend, then a downtrend and again an uptrend.
EUR/USD is trading at 1.30 nowadays touching the trend line. I consider this a better entry point for bulls being a round number and all, than the support level of the Greek General Index. In case I decide to trade EUR/USD long, I am prepared to trade down to a mini-lot. That is because of the considerably high risk of a stop loss placed down to 1.2750. I have never risked more than 30 pips in forex trading, so 250 pips do sound huge! On the other hand profit targets may go as high as 1,000 pips, should EUR/USD trade up to 1.40!
So, do you share the same opinion with me that Euro is going up the following months? Or are you looking to buy dollars instead? Also, what do you make of the movement in the Greek stock market? Would you invest or are you staying clear of dangerous markets? Let me know in the comments below.