Wednesday, October 2, 2013

XEU Euro Weekly and Daily Charts C&H Rising Wedge Overbot Negative Divergence

Italy politics are front and center with Berlusconi's party jumping ship towards Letta. This keeps the euro elevated at 1.35-ish. Of more import is the monthly ECB meeting this morning, typically on the first Thursday but instead on a Wednesday this month due to a German holiday tomorrow. Traders will listen for hints of any LTRO 3 easy money. The Fed's crack cocaine is QE and the ECB supplies LTRO. The weekly euro charts show where the LTRO's 1 and 2 announced in late 2011 saved the equity markets (brown circle and arrow) but the euro fell from the 1.40's to the 1.20's just like the Fed weakening the dollar. So within the next couple hours, Draghi will provide a statement on the feasibility of any continued LTRO, or not. The euro will react.

Lately, the euro remains elevated as the dollar is weakened. Europe will need a weaker euro to help the manufacturing and export industries recover. Thus, an LTRO 3 may be on the table which would send the euro lower and dollar higher, and would likely pump the equity markets. Regardless of all this political drama, the charts favor a lower euro moving forward. On the bull side, the weekly chart shows a Cup and Handle (C&H) pattern with a break out at 1.36 which would target 1.51. This outcome would be in concert with the dollar being crushed. However, the indicators are not enthusiastic with stochastics overbot and negative divergence in place or developing. The weekly chart is hinting at more of a resistance ceiling occurring at this 1.35-1.36 level rather than the C&H break out.

On the daily, a red rising wedge is in play with overbot conditions and negative divergence in place, all wanting to spank down price. Note how the small wedge has space available in the apex so a jog move may occur in coming days, down, then up, then down again, to place a top at this 1.35-1.36 level. The purple dots show price extension above the MA's which will require a reversion to the mean. Short euro trades, such as the 2x inverse ETF EUO may be considered as plays moving forward. Draghi's words are very important for the euro in the coming hours. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.


  1. draghi's days are numbered...the German Court will clip his wings

    1. That will be a very important decision. Is there any date set yet for when the German High Court will decide on the constitutionality of Draghi's actions?


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