Friday, May 1, 2015

XEU Euro Daily Chart W-Pattern Bottom

The euro is moving strongly higher off the 1.05-ish bottom only 13 days ago. The euro jumps to 1.1220 and as this is typed the euro is up to 1.1276. Price was extended below the moving averages requiring a mean reversion (blue dots). The green lines show the positive divergence that creates the price bounce and the indicators remain long and strong wanting further highs after any pullbacks.

The W pattern bottom is one of the most powerful formations in technicals. The W pattern is most powerful when it forms under both the 50 and 200-day MA's, as is the case above. The euro broke up through the 50-day MA at 108.87 a couple days ago. As a rule of thumb, the W pattern can be doubled to forecast a target; this would be at 119-ish an area of congestion at the beginning of the year.

The trend lower in the euro over the last year (with US dollar index moving higher) was a strong trend as shown by the ADX  pink box, however, the strong downtrend ended as April began (the black ADX line falls below the mid-20's). With the euro now moving higher the ADX is perking up and if the ADX enters the pink box in the right margin the trend upwards for the euro will be dubbed a strong  uptrend and expected to continue for a few months. For now, the trend higher in the euro should continue a few weeks. This will frustrate the huge consensus of traders that expect parity in the months ahead (euro 1.00).

The move higher in the euro will cause many sleepless nights for ECB President Draghi that is printing money to decrease the value of the euro to spur exports and manufacturing activity across Europe. The global central bankers have been playing games for the last six years colluding to drive global stock prices higher and inflate all asset classes. Perhaps the wheels are beginning to fall off the cart?

The euro  should back kiss the 50-day MA at 1.09-ish but a sideways to sideways higher euro would be expected for the weeks ahead. Europe's economy was beginning to show slight signs of life due to the stimulus but a higher euro may choke off this little bit of happiness and create problems in the euro zone. 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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