XEU Euro Daily Chart -- ECB Rate Decision 12/8/11 -- E. U. Summit 12/9/11

The euro chart has a whole book of technical analysis patterns in its behavior. The teal falling wedge and positive divergence bounced price in June 2010, setting a bottom. QE2 began in summer of 2010 and euro moves up as U.S. equities move up. The blue bull flag plays out and hits its target. This morphs into a larger red bull flag that also hits its target. Many times you will see a bull flag, or bear flag, morph into a double pattern like this. The neon green lines show that the price high came with negative diverence so a smack down occurred, as expected. As you recall, we watched all these patterns unfold in real-time this year.

Then price went into a descending triangle, collapsing out the bottom and hitting the target at 132-ish. This was the pink falling wedge and positive divergence area mentioned in early October and as forecasted, the euro popped from there. Price then back kissed the base line of that descending triangle, and collapsed again which brings us to the light blue lines currently.

There is no positive divergence to provide upside oomph since price never made a lower low. This is a chart that does not tip its hand. Price is very agreeable to sideways movement going forward. Perhaps currencies will trend sideways going forward in general? The ADX shows that the uptrend was strong in 2010 and sure enough the euro continued skyward. The ADX shows the downtrend was strong only two months ago. The 20 is under the 50 MA on both this daily, and the weekly chart which is bearish. Use the RSI and stochastic 50% levels on both the daily and weekly charts as a guide for direction moving forward.

The chart is indecisive now since the ECB rate decision and E.U. Summit occurs in two days, and anything can happen, so everyone waits, and the charts meander sideways. The two green dots show Trichet hike's in April and July, the red dot is the Draghi ease on 11/3/11. Note how the euro has dropped since the rate cut a month ago which would foster the projection that the euro will fall again this week in anticipation of, or as a result of, the rate cut coming on Thursday morning.

The projection is simply sideways movement going forward, let the RSI and stochastic 50% levels hint at which way price will favor. Lots of traders are short the euro which provides a reason to not expect significant downside, from a contrarian perspective.  Pehaps currencies will become a slight bit less important in relation to equities markets going forward.  Sometimes charts do not show a clear road ahead, like the euro now, but once clarity is received this week with the rate cut and debt crisis proposals, the chart will start to move again and provide a better look in a week or two.  Keystone has no position in the euro long or short. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here. Consult your finanical advisor before making any investment decision.