The Euro continues to look over the edge

• Posted by Greg Harmon
• on October 30th, 2015

The year started with the Euro having just dumped down from 140 to 110 over 2014. The last few months of 2014 were a quick move lower. If you remember the catalyst were a weakening European economy and some country with a lot of Islands and no real global importance was looking horrible. (Side note: I wonder why we never hear of trouble in The Dominican Republic sinking the global economy?). The FOMC had also announced their intention to end monetary support to the US economy (traders: read stock market).

What has happened to the Euro since then? Basically nothing. It has stayed in a tight range from 107.50 to 112.50 with a few brief forays outside of the range quickly reverting. But doing nothing actually has some meaning to a technician like myself.

The chart above can explain why. From its low in 2000 to its high in 2008 the Euro had moved over 65%. But since then the fall back has been in play. The price of the Euro broke out of a consolidating formation, a descending triangle, at the end of 2014. This formation would target a move lower in the currency to 83. That would be a full retracement of the move higher.

The stall that we have seen in 2015 does not preclude that from happening. This stall is occurring at the 61.8% retracement of the move up. This is a key level for traders, a Fibonacci ratio. Many would expect a battle at this level between traders that believe the currency is oversold and those who think the objective lies below. This has created yet another pattern for technicians, a bear flag.

The slight counter trend move in the Euro all through 2015 shows consolidation, but also a weak attempt to move higher. Essentially profit taking from some short holders but not any real strength in buying. The bear flag gives another look at the the technicals and a break to the downside and resumption of the move would target the low 80’s. Coincidence?

Continue to keep the Euro on your radar. Any prolonged stay under 110 would be a sign of weakness continuing. A move back over 115 that buyers are stepping in. The former would be a plus for US stocks, the latter is not as clear.

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