XEU Euro Daily Chart Triple Top Upper BB Violation Sideways Channel Island Gap

The ECB meets tomorrow morning to announce the rate decision and conduct a press conference so this will supply drama at this time tomorrow.  The Fed decision is next Wednesday where a replacement program for Operation Twist will likely be announced. The anticipation of further easing helps keep the dollar weak while maintaining buoyancy in the euro.  This morning the euro tagged 1.3120 and higher, then pulled back a couple hours ago. The S&P's move in lock step with the euro, up about 7 when the euro was 1.3120, and now up about 4 with the euro dropping down to 1.3076 as this is typed.

A week ago we studied this chart as price approached the upper Bollinger Band. Price has now violated the upper BB so a move back to the middle BB, which is also the 20-day MA, would be expected, as the black dots show.  The negative divergence in mid-October allowed for an easy call for a spank down, which occurred.  The early November bottom was not met with bullish enthusiasm as shown by the indicators; the money flow and histogram were only a hair positively diverged, the other indicators were weak and bleak wanting to see lower lows.  The gap at the red lines helped in bouncing price. Price remains on the island formed when the gap up occurred as September started. Thus, look for a potential island reversal in the future where the euro would drop from 127 to 126, back down thru the gap, in a heartbeat. The touch of the lower BB also aided in bouncing price one month ago.

The price action now shows overbot stochastics that are agreeable to a pull back, the RSI is near overbot.  The thin purple lines for the indicators over the three-month time frame show universal negative divergence now that the euro has printed a triple top. The violation of the upper BB should lead to a move down towards the confluence of moving averages, the middle BB and horizontal support at 128.1-129.2. The long and strong profile for the RSI, MACD line and money flow over the last few days hints at some topping action required then roll over. The feather in the bulls cap is the bull flag in place shown by the thin black lines; first leg is 121 to 131, ten handles, so if this is a leg two higher from 127, that would target 137, so all outcomes must be considered and monitored.

Projection is for a drop in the euro to begin over the next few days then reassess after the euro prints in the 1.29's. The consensus is for no change at the ECB meeting tomorrow so this would cause the euro to remain flat or up, with markets moving up.  If a surprise cut occurs, not that they have a lot of room to cut, but they need a weaker euro to boost manufacturing and exports to create growth, the euro would drop consistent with the chart above, dragging equities lower. Euro up = markets up.  Euro down = markets down. 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.