Wednesday, June 10, 2009

Euro Head and Shoulders Reversal

I was looking through my currency charts and noticed a nice little ugly head and shoulders possibly developing in the EUR/USD 60min chart going back the last several weeks. With the Euro trading around 1.403 as of right now it is still forming the right shoulder of this pattern so it is not yet confirmed. The neckline is right at 1.38 even and the previous high last week was a smidge over 1.43 so a measured move could take the Euro to 1.33 or down 500 pips or so IF it breaks down below the 1.38 neckline.

This would almost certainly be bearish for US stocks short term and would drag down the price of commodities as well. Just stalking this trade and not saying it will confirm itself, but it is worth watching.


Anonymous said...

Love your work.
Whereas I do not see the reversal based solely on technical factors, I do think the Euro is overvalued on a fundamental basis as well. Can you elaborate on why you state it would almost certainly be bearish for US stocks? Thanks.

Jason said...

Thanks for reading. I think the move up in the Euro recently and the move down in the USD is a more longer term move but for now is overextended and it should retrace. Of course when I said it would lead to a bearish scenario in equities I mean if everything else stays constant. Either way, cheaper dollars buy more stocks even if its just in nominal terms. On the other hand, stronger dollars do the opposite, by driving money to foreign markets, etc.

Anonymous said...

I agree with that logic. Thanks again.