XEU Euro and USD US Dollar Weekly Charts

The rise in the US dollar index, $USD, or the dixie, $DXY, is receiving lots of attention. The dollar spikes with the rise in crude oil prices. It is interesting to see the US stock market print new highs as the dollar rises. A lot of the recent pop and rise in the US stock market may be due to China's SSEC tanking about -5% over the last week; that money must have flowed into US stocks (the Shanghai Index is a rocket launch this year so the pullback is not that significant in context).

The US dollar strength story may actually be more of a euro weakness story. The two baskets own about two-thirds of each other's currency so the euro and dollar move inversely; and this is clear from the charts with the euro setting up with positive divergence and the dollar with negative divergence. European Central Bank (ECB) President Draghi opined two weeks ago about the lackluster economy in Europe. Draghi is very concerned about US tariffs further beating down the downtrodden situation across the pond. Italy's economy remains in shambles. The euro weakens.

The ECB will continue providing accomodative monetary policy. Draghi will continue flapping his dovish wings dropping euro's from the sky. The central bankers are the market. Each nation around the globe wants a cheaper currency to boost their economy but the concern is that confidence may be lost during this process.

Two weeks ago, the euro was at 1.124. You can see the big drop off with the last two candlesticks. The euro is printing at 1.1134 as this message is typed on Friday morning, 4/26/19. The euro is receiving support from that congestion zone (blue circle) back in the summer of 2017. The dollar is trying to punch up through the congestion zone from 2017 and the Friday trade is very important to dictate the final look of the candlestick.

The charts are mirror images of each other which would be expected since they move inversely. The moves in the currencies may be due more to the euro weakening, as mentioned, rather than dollar strength. The euro chart indicators are in possie d (green lines) wanting to see a recovery in price going forward. The dollar chart indicators are in neggie d (red lines) wanting to see a pullback in the buck going forward.

Markets are very emotional and news-driven these days. Any messages from central banks can immediately influence the direction of the currencies.

Note the multi-year tightness in the standard deviation bands (pink arrows). There is likely a big move coming for currencies over the next couple weeks. Tight bands portend big moves but do not predict direction. By the behavior of the charts, it appears that the tight bands are squeezing the euro lower into complete collapse while squeezing the dollar higher with a rocket-launch into the stratosphere. You have to give this another week or two for confirmation because at the same time, the band limit violations hint that the euro wants to at least recover to 1.133 and the dollar wants to drop to 96.40. There are big gaps above and below for the euro (orange circles).

The wedge patterns and divergences are forecasting the opposite move of the current direction of the band squeezes. It's a mixed bag. Interestingly, the ADX's are in the cellar so the trend lower in the euro, and trend higher in the dollar, over the last year, are NOT strong trends.

One thing for sure is that it will be a wild time in currency land over the next week or two. Either the tight bands will confirm an ongoing euro collapse and dollar rally and the divergences will have to reset, or, prices will dramatically reverse from this two-week path, as the divergences and wedges indicate, with the euro gaining strength and the dollar retreating lower and the tight bands exacerbating these moves in this direction. Keystone has no positions in the currencies currently but if a side had to be picked, the expectation would be for the euro to move sideways to sideways higher for the weeks and months ahead while the dollar moves sideways to sideways lower for the weeks and months ahead. 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.