Tuesday, January 27, 2009

Euro then and now

On December 18, I posted at this site the following about the euro:

The euro as measured by FXE has gone above the conservative target mentioned here recently - looking like a third wave or "c" wave up. In concert with the points made here about the dollar and gold, perhaps it's due for a consolidation or pullback.
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And here's how the euro looks today, January 27, 2009 (again using the FXE chart):


So what's next? First, it's interesting to note that the euro has moved generally inversely to the dollar, whereas gold recently has not. That is, as the euro was rising, so was gold, while the dollar was falling. Since then, the dollar has gone up as the euro was dropping again, while gold has (with zigzags) moved higher. One way to interpret this from a fundamental perspective may be to infer that money coming out of other assets has been going into the dollar as well as gold (and until recently, bonds) as investors have seen all three as safe havens.

As a technical trader, it's just another reminder to evaluate each chart on its own. The euro chart's RSI has been showing bullish divergence, and euro bulls will certainly view the pattern as a reverse head-and-shoulders pattern that should project upward toward the highs. But Elliott Wave and Fibonacci analysis suggest that the move upward when it was testing the 200-day moving average was merely a pullback and that the trend could be down. The indicators don't necessarily say that it's in a strong downtrend, but neither are they bullish on their own. It will be key to look for how it moves with respect to the downtrend channel it's been in - needs to break above that upper line, or it risks continuing down to new lows.

Let's take a look at the weekly (FXE) and monthly ($XEU) charts:



These show that it's testing around its 200-week moving average, after moving down from the 20-MA midline of its monthly Bollinger Band. The monthly indicators show that it can recover, but the weekly chart indicators are mostly looking weak again after that sharp move up.
For now, I'll remain skeptical on the euro - it would have to prove itself with strength in the charts, to show that it isn't going to move further downward.

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