One of the mysteries lately is the euro holding up in the face of a crumbling Europe, perhaps on the verge of an epic depression. For the last four months, the euro has maintained a sideways posture thru 141-149 and more specifically, 143-145 for the last two weeks. Why? Without any clear answer, the assumption is that markets view dollar weakness as a greater potential than euro weakness. Therefore, markets expect Chairman Bernanke to show up with more booze for the QE punchbowl. Perhaps today, after Bernanke's speech from Jackson Hole, WY, we receive resolution. If Bernanke avoids the quantitative easing expectations today and prefers to leave the printing presses unplugged, that should break the dam and the dollar and euro charts would respond accordingly; euro down and dollar up. Of course, if Bernanke announces free QE liquor for everyone, the recent euro strength will make much more sense as dollar weakness would resume.
The descending triangle patterns remain in place for the euro. Note the thin red line from late July thru early August with price printing a matching high but the indicators are all negatively diverged, hence price weakness occurred to bring us into today. The moving averages are lining out sideways verifying the sideways price action. Price is hanging out above the top rail of both triangles as we move into today's main event.
The 20 and 50 MA's at 143 are critical support. That would be the first warning signal that the euro is in trouble should this support fail. The next target is the 142.5-ish gap fill, then the 142 horizontal support level. The wheels would fall off the euro should the 141 level fail, the base line of the descending triangles. This failure immediately targets the 133-135 zone. There are some large juicy gap fills required on the way down as well.
This chart and commentary sets the stage for the path ahead. Dollar moves inverse to the euro, thus, be aware of the asset relationship of euro down=dollar up=commodities down=equities down. Of course, if Chairman Bernanke shows up today with QE booze in hand, the opposite would occur; euro up=dollar down=commmodities up=equities up. Current projection is that the euro will fail the base line of the descending triangles leading to a lower euro, higher dollar and lower equities as we watch the Autumn leaves fall. The higher dollar, lower commodities and higher treasuries with lower yields will all lead to Bernanke instituting QE3 as you search for the leaf rake.
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