XEU Euro Weekly Chart; ECB Decision Imminent; Tight Standard Deviation Bands

All eyes are on the euro ahead of the European Central Bank (ECB) rate decision (1:45 PM Frankfurt and Central Europe; 12:45 PM London; 7:45 AM EST) and President Draghi press conference (2:30 PM Frankfurt and Central Europe; 1:30 PM London; 8:30 AM EST)  in three hours. That chart above is a big bowl of spaghetti.

Just as there is a fine line between love and hate, there is a fine line between a descending triangle and a falling wedge. These two chart patterns forecast opposite directions the red descending triangle obviously hinting at failure while the falling wedge is hinting at a bullish rally higher, respectively. With the ECB decision imminent, it is a coin-flip. The ECB is going to crank-up the TLTRO (targeted longer-term refinancing operations) program again. King Draghi may proclaim dovishness across the land. That should lead to a drop in the euro and make euro bears happy and the descending triangle would be in play.

The vertical sides of the triangle pattern are about 5 or 6 points so a failure from 1.13 would set the course to 1.07-1.08 for the weeks ahead. There is a juicy gap at 108 that will need filled at some point in the future. The green falling wedge is a bullish pattern that predicts a break-out higher and several weeks of upside ahead.

The red lines show the top in the euro that Keystone called in early 2018. Price prints out a new high but the indicators are all sloping down with neggie d (negative divergence; price continues higher but the indicators are diverging down in the opposite direction; this indicates that price is out of gas). The green lines show the lower low in price in November and that was met with possie d (positive divergence; price makes a new low but the indicators are sloping higher fueled-up and ready for a rally) that created a bounce and lift in price. With all the ongoing global turmoil, Europe's economy weakening, the Brexit mess, etc.., the euro staggers sideways like a drunk in Times Square on Saturday night. The indicators are all lining out sideways as well.

Note the standard deviation bands squeezing-in tight (purple bands and arrows). There is a big move coming in the euro over the next couple weeks or so that will send price in that direction for the weeks ahead. Tight bands, however, only indicate that a large price move is about to occur but do not predict direction. Sometimes there will be a fake-out move for a week or so with a sharp hint in one direction but then pirce sharply reverses in the opposite direction. About 2 to 4 weeks from now, it should be obvious what direction the euro has chosen due to the tight bands and that direction will likely continue for several weeks. Tight bands are like squeezing a tube of toothpaste. You know that a huge mess of toothpaste is about to explode as the cap flies open but you don't know what direction it will fly.

The ADX shows that the trend higher in the euro in the back half of 2017 and first half of 2018 was strong but that petered out by springtime 2018. The ADX muddles sideways at 24 indicating that the price action does not have a strong trend currently, which jives with the ongoing sideways indecision. This would be expected over the last couple-few weeks since all are waiting on this important ECB decision and King Draghi presser today. The central bankers are the market.

The blue circles show a congestion area at 1.12. Note how the euro came down to kiss this level in November at that low. That print remains the lowest low for the euro over the last 21 months. Obviously, if the euro loses the 1.12 level, there will be H*ll to pay.

So whats all this mumbo jumbo mean? There are three scenarios; first, the red descending triangle plays out, the euro collapses from the 1.13 baseline it is at now, through 1.12 and will target 1.07-1.08 say, in late March, April or May to fill that big gap. Second, the rising wedge pattern sends price higher, the euro breaks up through 1.14 and starts ramping strongly higher. Those moving average levels above all serve as upside targets for the weeks ahead.

Third, since King Draghi is about to assemble his court of central banker jesters, the euro may weaken in the days and week or so ahead then rally after that. The euro is at 1.13 and you can see that there is room down to the 1.12 support. The lower band is at 1.126. The euro may want to suck in the bears with this initial move lower for a week or so after Draghi opines this morning, but the euro will then subsequently bounce strongly and break-out of the rising wedge to the upside. Since the euro may rally for a few weeks or month or three (after the initial drop), the US dollar index would be moving lower, say, into April-May.

The third scenario is the most likely currently but Keystone does not have any trades on with the euro right now. No trades are planned but if the euro is at say 1.12-ish next week, and the chart is set up similarly, a long trade on euro may be prudent. Global investors await Emperor Draghi to arrive at the Temple, outstretch his right arm like Julius Caesar, and provide a thumbs-up or thumbs-down for investors. Such is the modern-day joke of a financial system. The central bankers are the market. 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 9:37 AM EST: The US stock market opens and equities are off and stumbling. ECB President Draghi is flapping his dovish wings more than expected. The euro drops -0.6% on the session to 1.1238 tagging that lower standard deviation band and teasing the 1.12 support. The US dollar index is above 97 and climbing. US stocks are soggy with the SPX slipping a few points. Ho, whoa, ho, S&P 500 now down 12 points, -0.4%, to 2760. The Dow is puking 124 points.

Note Added 7:35 AM EST on Friday Morning, 3/8/19: The euro weakens after King Draghi's presser yesterday. The euro drops to the key 1.12 level, and prints a 1.11-handle, but recovers to 1.1213. The euro is making the bounce or die decision at the blue line.