Trade of the week: long EUR/USD

We would thus like to go long EUR/USD at $1.0326 with a stop loss at $1.0175 and an upside target in the $1.0750 region.

(Video transcript)

Previous trading outcomes

Axel Rudolph: Hello and welcome to "Trade of the week" on Monday 10th February, 2025. Now, as you probably know, we haven't done very well in January. And instead of going long the DAX 40 or the FTSE 100 or the spot gold price, all of which made new all-time highs last week, we tried to go short and long the WTI oil price and got stopped out both times.

We had a long Tesla trade on that didn't work out either. And even last week when we went short the VIX Index, the Volatility Index, I was correctly anticipating a minor bounce at the US open, which did happen, but it didn't bounce as high as my entry level. So that trade wouldn't have been triggered even though it worked out perfectly well.

These things happen. Should you change anything? No, because basically, even last year when we were up 30% plus, we had a phase, I think even twice, where we had four trades in a row wrong. And this is why we risk 2% per trade, because basically, even if you get five trades in a row wrong, you lose 10% of your capital, but then you only need to make back 11% to get back to where you started from, to break even.

But imagine if you risked 10% per trade. In that scenario of getting five trades in a row wrong, you would have been down 50%, and now you need to make 100% profit just to get back to break even. So that's why we risk small amounts, because we know that we will statistically, at some stage in our trading lives, get five trades in a row wrong. And hopefully this is not going to be the case with regards to Trade of the week, but these things happen. So you don't need to change anything.

But imagine you get ten trades in a row wrong. In that case, what you need to do, even beforehand probably, is to reduce your trading size so you can go from 2% risk per trade, maybe to 1%, or even half a percent. And what you absolutely don't do is increase your trading size and revenge trade, trying to make your losses back.

This week's trading opportunity

Anyway, long story short, let's look at this week's "Trade of the week", which is to go long EUR/USD. So, why do I want to go long EUR/USD? Well, basically because of, several things happening. Can you see here that we came off again, as the US dollar is strengthening on newly imposed tariffs by President Trump, which he announced yesterday when he was on Air Force One flying to the Super Bowl and saying that there were going to be 25% tariffs on steel and aluminium imports into the US. And that has pushed the euro lower, the US dollar higher.

But you can see here, even last week when we had a huge gap down, basically we held above the January low. And it seems to me that the US dollar seems to be trying to form a bottom. And for that reason, from a fundamental point of view, I would like to go long the euro against the US dollar. So perhaps around current levels, around $103.26, and have a stop-loss below the January low.

So this week's "Trade of the week" is to go long EUR/USD around $103.26 with a stop-loss at $101.75, just below the January low, and an upside target a long way away because we think it's a medium term trend reversal that is taking shape here. And the upside target could be anywhere above $107.50.