Looking at the weekly chart of the Euro, it is clear that the rally that started in mid June is likely to continue. The MACD has completed a bullish crossover and last week saw a break through the 38.2% retracement level that had held as near term resistance. With this level breached, the next assault is likely to occur near the $1.35 level. And with momentum on the Euro’s side for now (as judged by the MACD), it appears that this test could come rather quickly. The corresponding weakness in the U.S. Dollar would likely be supportive of equity prices when/if the march to $1.35 begins.
Looking at the shorter term daily chart, there are a confluence of indicators that suggest that the Euro could see a near term pullback. As you can see, prices have been trading within a fairly well defined, positive sloping price channel for the last couple of months and are now reaching the upper bound of that range, which would suggest prices are ripe to reverse. Furthermore, the 200-day exponential average and the 50% retracement level (of the high to low move seen between January and June of this year) lie at or near the upper bound of the price channel, which suggests that there will be a fair amount of resistance around the $1.335 level. While a slightly different resistance point than what is implied on the weekly chart, taken together, it appears that the Euro has room to run but that we are nearing a point of correction and/or pause. Because of this, I would be wary about adding to a long Euro position at this point since the risk/return profile isn’t all that attractive. However, I will be watching this market closely to gauge where domestic equity markets are likely to go. Strength in the Euro will suggest the equity rally can continue while weakness will likely be met with equity selling.
No comments:
Post a Comment