It's Time to Close Out Your Short Euro Trade

Six months ago, in my newsletter True Wealth, I told readers it was time to bet against the euro:

This type of opportunity doesn't come along very often. It's time to bet against the euro. It's overpriced. A mountain of factors is against it. And a downtrend has been established – so it's time to make the trade.

I recommended the ProShares UltraShort Euro Fund (EUO). It's an exchange-traded fund designed to rise 2% if the euro falls by 1%.

But today, the euro is in nearly the opposite position it was in back in December, as I'll explain. Now, it is time to close out our position and take our profits.

Back in December, investors were extremely optimistic about the euro and pessimistic about the U.S. dollar. Today, six months later, we're in the opposite position… The sentiment surveys show investors are at record levels of pessimism about the euro.

Traders are putting their money where their mouth is, too. Looking at the "commitments of traders," you can see they've bet against the euro in larger numbers than ever before – by far. The thing is, all these bets will have to be unwound… and the way they are unwound is with a "buy" order for euros.

Back in December, nobody talked about Europe's woes yet. I wrote about Greece back then and what was possible. But nobody was worried about Europe yet. Now, investors are worried… We're hearing talk about the potential collapse of the euro. Now that's pessimism!

Also, back in December, I showed how the euro was wildly overvalued – it was at least 35% overvalued versus the U.S. dollar. But now that the euro has fallen from $1.50 to $1.20, it is no longer wildly overvalued. It's fallen back to a "normal" range.

Could the euro keep crashing? Absolutely. Could it go to parity with the U.S. dollar… or even lower? Absolutely.

But we have made an extraordinary gain in six months, particularly on a simple currency trade. I am afraid we could see a violent rally higher in the euro, wiping out some of our profits. Then the euro will return to its downtrend.

Sizing it up now, with all the negative sentiment, and with all the bets against it, I'd be more inclined to buy the euro than sell it. I'd need to see an uptrend first, of course. But even then, the euro is not cheap enough. I typically only do currency trades when I have all my ducks in a row, like we did in December.

So it's not time to buy the euro. It's simply time to close our bets against it and pocket our big profits.