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

The Draghi decision is now only a couple hours away. The euro is jumping higher this morning and the asset relationship euro up = dollar down = commodities up = gold up = equities up is in play. Interestingly, copper is weak. The chart shows the oversold conditions, falling wedge (neon green) and positive divergence where Keystone identified the bottom five weeks ago. Now price has worked up into the red rising wedge, with overbot stochastics, and negative divergence (red lines) so a spank down would be in order. The MACD line is a hair positive which may lead to a slight stutter step and then smack down. Ahead of the ECB excitement, the euro has moved up intraday near that thick blue line, now hovering around the 126 level, so keep watching to see if the negative divergence remains in place.

The blue lines show the potential inverted H&S under development. The euro peaked in April 2011 and has traveled in a downward-sloping channel ever since.  Keystone highlighted the positive divergence on the weekly chart in July as well which bolstered the case for the euro bounce, which occurred.  The behavior on the weekly chart hints at a basing move in progress, so perhaps the euro will prefer the sideways 120-127 range for a while. The left shoulder of the H&S is shown in late May early June, the head is the July low, and the neck line is the 127-ish level.  The euro move today is interesting since it may want to kiss that 127 neckline. The euro is not anticipated to break up and thru the 127 level but you never know.

Instead, in keeping with basing behavior, the euro will move likely see the ceiling at current price levels 126-127, and receive the spank down move due to the developing and in place negative divergence. The two blue lines in the margin are potential targets for the developing right shoulder of a potential inverted H&S. The 20 MA moved above the 50 MA which is bullish and price above the 20 MA is bullish.  Initial downside targets for price are 125.50, then 125 which is also where the 20 MA is sloping up towards so this may develop into an important confluence of support at 124.7-125.0.  A juicy gap is shown by the green circle which is a confluence of horizontal support, and the 50-day MA, all at 123.50-ish, which is an attractive target for a right shoulder.  Two lower gaps are open as well so if things deteriorate in Europe and the euro starts to plummet lower, those gap fills may provide the right shoulder to continue the basing move for price.  If the 127 neck line is violated to the upside, then the target above is the horizontal resistance area at 134-ish.  Many, including Keystone, would be surprised at that in the days and weeks ahead, but perhaps the inverted H&S is a future plan for the euro more at year end and into early 2013.

The projection is a move down in the euro near term but obviously, Draghi will raise a magic wand shortly and determine the fate of the euro. The chart says down, what does Draghi say? 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.