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Contagious. Systemic. Gangrenous ...

|Includes: ProShares UltraShort Euro ETF (EUO), ULE

It’s hard not to love this headline from Reuters:


The little Thanksgiving “research note” we sent around on Wednesday included commentary that called the entire eurozone bailout effort a complete failure. So as the Irish bailout details are finalized, and focus shifts to potential bailout solutions for Portugal, Italy, and eventually  Spain, the realization eurozone creditor nations will be unable to fund such rescue efforts will seep into the markets and continue to beat down on the euro.

Spain-German10-yr Spread Daily:

[Chart not available in text format]

Indeed, starting about two weeks ago we’ve been cautiously ramping up our expectations for a dollar bottom (euro top). We have for a while now been open to an all-out collapse of the economic monetary union and the common currency; but market consensus was fixed on QE2. The speed at which the euro is now giving up ground should become self-fulfilling; deeper declines are ahead.

Before this week we thought the euro could climb a bit higher before an eventual failed test of the 1.4280 daily high. But Tuesday’s mashing and today’s move mean the pressure on the euro might have built up more quickly than we expected. There are some things to watch, however, in the near-term:


[Chart not available in text format]

1) The pair is approaching the bottom bound of its downtrend channel (solid blue lines).

2) The pair is just above its 200-day moving average(purple line.)

3) The pair is testing trend line support going back to June (speckled line).

4) The pair testing chart support going back to August(dashed uptrend line).

In other words, on a technical basis, EURUSD has found several support levels converging at about 1.3150-1.3200. From here we could see a corrective bounce. But ...

We know that when the crowd seizes on a fundamental story, the technical picture can quickly become irrelevant.   So, we recommend you remain short euro and sit through any corrective bounce; within reason of course.   The potential rewards seem to massively outweigh the risks of remaining short EURUSD here.

Disclosure: Long EUO.