XEU Euro Daily Chart Overbot Developing Negative Divergence Potential Inverted Head and Shoulders (H&S) Pattern

Here is an updated euro chart, following the dollar and the euro is very important since the following asset relationships dictate market direction; euro up = dollar down = commodities up = gold up = copper up = equities up = bond yields up (price down as money moves towards stocks instead), or, for the market bears, euro down = dollar up = commodities down = gold down = copper down = equities down = bond yields down (price up as money seeks the perceived safety of bonds). Type 'XEU' into the search box above to bring up the prior euro chart.

We were monitoring a developing inverted head and shoulders pattern shown by the blue lines. Price is now printing at the neck line at 1.28 and the pattern would need a move down to place a right shoulder. Look at how price leaped from 126 and change to over 127 late last week. The ECB did not lower rates as the markets expected so the euro popped strongly. This current 128-ish level tests the prior horizontal resistance from May.  The green lines show a long and strong profile, except for negatively diverged histogram and stochastics, which are causing today's slight weakness.  Price will want to make another matching or higher high where the indicators will then have to be checked for universal negative divergence indicating a spank down on tap. There are upside gaps that serve as targets; euro resistance above is at 128.59 (200-day MA), 129.00, 129.74, 129.90 and 130.80.

For the broad indexes to place a significant market top and roll over as the CPC, VIX and NYMO charts suggest, the euro will have to move down, as the asset relationship above shows. Projection is sideways slop into Chairman Bernanke's decision at noon on Thursday, at which time, negative divergence will likely exist across all indicators and cause a strong move lower to place a right shoulder at one of the blue support bars. The price action will have to be monitored daily. 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.

Note Added 9/10/12 at 4:06 PM:  The euro is 1.2759.