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How To Determine Which Euro Currency To Short? 

Last Updated: July 25, 2019

By Rayner

The Euro has fallen about 2200 pips since May 2014. And if you recalled, I spoke about Eurusd Shorting Opportunity 3 weeks ago.

Looking at Eurusd 4 hour chart now, you’d notice price has pullback to the 20 & 50 EMA once more. Since I am a trend follower, this is another opportunity to scale in my trade.

eurusd2Eurusd 4 hour chart

However if you pay attention to Eurjpy, it is also putting up a similar setup as Eurusd. Thus a question I get often from traders is, which pair do I trade?

eurjpyEurjpy 4 hourt chart

One way I go about is looking at relative strength to decide which is the weaker pair. However in this scenario, it is not so clear as both their moving averages are aligned similarly.

What I would do is to look up the chart of Usdjpy to determine whether the Usd or Jpy is likely to strengthen. Usdjpy has been in an uptrend since Jan 2013 and price seems to be forming a triangle pattern.

usdjpy2Usdjpy weekly chart

If we anticipate that the triangle pattern would break up to the upside, then it would mean the Usd will strengthen against the Jpy. And if that’s the case, I would choose Eurusd over Eurjpy to short.

Alternatively if you can’t decide whether Eurusd or Eurjpy would be a better trade, you can consider splitting your risk across both pairs. So if you usually risk 2% per trade, you can risk 1% on Eurusd and 1% on Eurjpy.

So, will you short Eurusd or Eurjpy?

  • Hey Rayner,

    Thats great.

    You let me understand more about relative strength.

    By the way, can we using US index or EURO index to identify the currency strength ?

    By ALEX

    • Hi Alex,

      You want to identify relative strength by comparing products of the same sector.

      If it’s indices, you want to compare with Dax, S&P, Hangseng etc.

      You may want to check out this post for detailed explanation.

      Rayner

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