Monday, December 22, 2014

XEU Euro Daily Chart Oversold Falling Wedge Positive Divergence Price Extended to Downside

Everyone and his brother is shorting the euro. The cab driver this morning told Keystone that he is all-in short the euro. The ECB is embracing Keynesianism, much to Germany's dismay, so traders are fully on the euro short side or the boat each telling the other how smart they are to be leveraged short the euro; they are about to be slapped as the boat tips over into the ocean.

The daily chart shows indicators that are universally positively diverged (green lines) with oversold conditions and a falling wedge pattern (bullish). This set-up is a powerful upward force so the euro is on the launch pad ready to rocket higher with a bounce that will shock the large consensus short. A short-covering rally may create a substantive bounce. The pink boxes show how the trend lower for the euro was very strong from August to October but that strong trend lower has petered out. There is no strong trend lower anymore in the daily time frame. Price is extended to the downside under the moving averages so a mean reversion higher is needed.

The projection is for a bounce in the euro. If you are short, it is likely prudent to exit unless you plan to hold the euro short well into summer time. The long side appears attractive for the euro in this daily time frame for nimble and speculative traders. The weekly chart is set up with possie d as well so up is the next short term direction for the euro. The weekly chart is in a strong trend lower so after the euro bounces say in the coming days or week or three, or month or two, it should resume the downside on the weekly basis. It will all depend on when the ECB decides to pump the stock markets and bludgeon the euro.

When the ECB announces more stimulus either officially at an ECB meeting or in continual lip-service news bites, the euro will weaken. The charts, however, want to see the euro recover higher over the short term. This analysis is in sync with the prior dollar chart that is ready to pull back and take a rest (the euro and US dollar index move inverse to each other). Bring up prior charts for further study by typing the ticker symbol or key word into the search box in the right margin. 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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