What This Means For Forex Trader

European Monetary Union (EMU) seems to be in trouble with the heavy debt crisis precipitated by Greece. It seems that a policy decision has been taken by the European Central Bank (ECB) to use the devaluation of EUR as a means to fight the debt crisis and make the EMU survive.

What this means is the European Union (EU) wants to keep the EMU and the EUR intact at all costs. This cost will come in the shape of buying the massive government debt of the weak economies in the EMU by printing a lot of money. This increased money supply will naturally lead to the massive devaluation of the EUR and inflation in the EMU in the medium term.

This was evident from the recent ECB press conference in which the ECB president said the Greek default was out of question. Another indication of the expected EUR devaluation is the fact that recently the Swiss National Bank (SNB) stopped buying EUR as an intervention tactic to strengthen Swiss Franc. This indicates that the SNB is anticipating a devaluation of EUR.

Now, as the fundamentals are showing a expected devaluation of EUR in the short to medium term, wealthy investors will start shifting their wealth into US Dollars (USD) as a safe haven and capital will start flowing towards the US.This see saw flow of the capital between the US and the Euro Zone keeps on taking place as wealthy investors keep on shifting their wealth in search of the safe haven.

As a position trader, this fundamental picture of the EURO means is that this is the best time to go long on USD and short on EUR. Currency options is one of the ways to profit from this devaluation in EUR and expected strengthening of USD. This is exactly what George Soros had done in early 1990s when he sensed that the British economy was weak to pull along within the EMU.

So he heavily went long on the German Mark and short on British Pound (GBP) using currency options. His gamble went well when the Bank of England could not sustain the overvalued GBP and had to float it free in the market. Currency options is one of the best ways to profit from the trend.

Another way to profit is to invest in a Currency ETF that tracks the EUR. Currency ETFs are also a great vehicle to diversify your investment portfolio. Of course, you can also swing trade EUR/USD pair.