Monday, December 22, 2014

XEU Weekly Chart Oversold Falling Wedge Positive Divergence

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 in the short term as the boat tips over into the ocean.

The weekly chart shows indicators that are universally positively diverged (green lines) with oversold conditions and a falling wedge pattern (bullish). Keep an eye on the MACD line that threatens to keep the euro low for a couple more weeks. The positive divergence, oversold conditions and falling wedge are a powerful set-up for bounce in the euro. A short-covering rally may create a substantive bounce. The pink box shows how the trend lower in the euro remains strong on the weekly basis. Thus, after the positive divergence on the daily and weekly charts influence a basing and recovery higher in the euro for days, a couple-few weeks or perhaps well into Q1 2015, the trend lower for the euro should reexert itself. Obviously it would depend on when the ECB plans to goose the stock markets higher with easy money. The daily and weekly euro charts, since they indicate a sideways to sideways recovery move higher, hint that the ECB may not provide the easy money as quickly as thought and that they promised in January. The ECB meeting is late January so an easy projection to make for the euro is that it will recover higher over the next month then will be slapped down late January when ECB President Draghi announces that the printing presses will print euro's 24/7.

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 now into late January. The daily and weekly euro charts 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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