XEU Euro Daily Chart Bollinger Bands Hanging Man Inverted H&S

The euro is pushing towards a dramatic move that will likely occur as the European Summit plays out this week.  The Bollinger Bands are squeezing in tight and will shoot price either violently up, or violently down.  The euro moves in the same direciton as the equity markets so up euro = up markets, down euro = down markets. The blue inverted H&S remains in play. Price broke up thru the neck line at 127 and targets the 133-134 area. A back kiss of the neck line is always expected but price has not wanted to trace back down as yet.  Today's print is a hanging man candle which typically hints at a trend change, and the trend the last five days is up.  The upper BB is violated as well so at a minimum, a move back to the middle BB (20-day MA) at 129.42 would be expected. In addition, a move to the lower BB would be in order, considering it has not occurred since Draghi announced his bazooka in late July creating the bottom for the euro.

The 50 MA is moving upwards. Note that the 50, the 200-day MA and the lower BB, along with the horizontal support, all form a confluence at 128.30-ish which should act as a magnet. Thus, the support levels are 129.42, 128.30, 127.00. The indicators are split currently, the RSI and MACD want to see price move back down now while the stochastics and ROC are more agreeable to a move back up for a higher high (perhaps the gap fill at 130.9) after a pull back occurs. Note the 50-day MA moving up towards the 200-day MA to create a potential golden cross which would be perceived to be bullish.

The Spain bailout is the ongoing key drama. If there is encouraging news, like this morning with the line of credit talk, that created the plus eight move in the S&P's before any other influences occurred today, the tight BB will squeeze out a vertical spike and the euro would venture to the 133-134 H&S target.  The market bears need to see a move lower, a tght BB move that squeezes south would allow price to finally back kiss the neck line at 127. The tweezer top occurred mid-September and the euro has been unable to move back up to this level as yet. It is too close to call since Spain controls the outcome. It is interesting that the U.S. markets are entirely dependent on what Rajoy says over the next day or two. A weaker euro has to occur to help Europe achieve growth. Perhaps the ECB will cut rates on 11/8 which will drop the euro and the equity markets. 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 10/17/12 at 4:20 AM:  Moody's does not plan on downgrading Spain.  The euro catapults skyward hitting 1.3125, now well above the upper BB.  The Moody's announcement may serve as the catalyst to launch price from the tight BB's. This places euro price in the vicinity of the mid-September highs so it will be interesting to see if the indicators remain negatively diverged across that time frame.  The Spain 10-year yield falls to 5.54%. With Spain yields calming further, Spain would be less likely to request a bailout. What circular mess.  With the large euro jump on the Moody's news, the U.S. futures should be up large, instead, the futures are flat with Nasdaq weaker on the IBM and INTC news last evening. Never a dull moment.