Wednesday, October 23, 2013

XEU Euro Weekly Chart 2-Year Highs C&H Inverted H&S Gaps

The euro pulses higher towards 1.38 printing 1.3760 currently. This is a 2-year high not seen since Fall 2011. Investment banks and analysts are saying the QE tapering will not occur until March 2014 at the earliest, and some say June, so the dollar is slapped silly, already laying in the ditch but it continues to be kicked in the head. Dollar down means euro up. The purple cup and handle pattern was highlighted in a previous post (type 'XEU' into the search box to bring that chart up), and would yield the same upside result as the inverted H&S. The green inverted H&S shows the neckline at 1.37 which price just broke up through. With head at 1.21, the target would be a big 1.53 print. At this juncture, however, the C&H and inverted H&S patterns are not expected to play out. The red lines show multi-month negative divergences although the near-term momo due to the ongoing political drama and delay of QE tapering provides long and strong juice. The euro will likely want to print another higher high after any pull back occurs in both the daily and weekly time frames. A back kiss of the inverted H&S neckline would be prudent at 1.37.

Price fills the juicy gap from 2 years ago and there is still gap space available to 1.38. Another gap above is 1.41-1.42, which was already filled in 2011 and is technically not in play, however, this area provides resistance levels nonetheless. The stochastics are overbot at the ceiling so this will create a pull back but the other indicators have more short term juice. Markets are news-driven these days so if Chairman Bernanke so much as coughs next week at the 2-day FOMC meeting, and it sounds like he said taper, the dollar would jump higher and the euro will drop like a stone. So the headlines are very much in control.

The current projection is for the euro to bounce along 1.37-1.41 for the next month leading to a roll over to the downside. The 1.37 back kiss should occur over the next couple weeks. A short euro trade or long dollar trade has potential moving forward but a couple more weeks need to play out to see how the price action proceeds. Currencies and Treasury yields may develop into a sideways funk for weeks and months to come. 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.

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