Post by TradingForGod on Aug 24, 2004 8:36:41 GMT -5
Today we’ll take a look at the euro. We won’t spend a lot of time on it because I don’t imagine many of us actually trade in the foreign exchange (forex) market. However, relative currency valuations say a lot about the interest rate picture and money flows between regional economies. Before the euro started trading, there were a lot more currency relationships to follow, but now the German Mark, Italian Lira, etc. have gone the way of the Dodo. Other than the British Pound and the Swiss Franc, the Euro is really “it” to determine the relative strength of the US and European markets.
You can see from the weekly chart below that the euro has been in a relentless uptrend (US dollar declining) for more than two years. The market peaked last February and fell steadily into late April when it hit, and held, the major uptrend support line. Since that time it has essentially ridden the support line higher and in mid-July peaked again at the 62% (Fibonacci) retracement of the initial sell-off. Note too how it stalled RIGHT AT the upper Bollinger band. By then, the uptrend had weakened to the point that a sale into that band was a very good opportunity.
The euro has chopped sideways since then, briefly violating trend support. In the last week it has fallen below the trendline yet again. Note how the 20 and 40-week MAs have flattened out. It’s hard to see on this chart, but the 20-week MA is below the 40-week MA for the first time in over two years. That’s not particularly positive either.
It looks to me like the euro is getting ready for another extended sell off that should take it down to at least the November low near 1.13. It could also fall back to the Aug’03 low just over 1.07. This sell off could talk several months to develop.
Again, I am no economist, but generally speaking as the euro falls (dollar rises), US interest rates go up. That could have a negative impact on equity markets as it makes bonds a more attractive investment vehicle. Money could flow out of the stock market to be reallocated to the “safer” treasury market. But heh, what do I know. You can get a better analysis of that phenomenon by watching CNBC, or for sure reading Savant’s column. In any event, the euro chart is one more reason that I continue to be a little cautious about the overall equity picture at the moment. We’ll see if that caution is warranted or not.
God bless you all,
TFG
You can see from the weekly chart below that the euro has been in a relentless uptrend (US dollar declining) for more than two years. The market peaked last February and fell steadily into late April when it hit, and held, the major uptrend support line. Since that time it has essentially ridden the support line higher and in mid-July peaked again at the 62% (Fibonacci) retracement of the initial sell-off. Note too how it stalled RIGHT AT the upper Bollinger band. By then, the uptrend had weakened to the point that a sale into that band was a very good opportunity.
The euro has chopped sideways since then, briefly violating trend support. In the last week it has fallen below the trendline yet again. Note how the 20 and 40-week MAs have flattened out. It’s hard to see on this chart, but the 20-week MA is below the 40-week MA for the first time in over two years. That’s not particularly positive either.
It looks to me like the euro is getting ready for another extended sell off that should take it down to at least the November low near 1.13. It could also fall back to the Aug’03 low just over 1.07. This sell off could talk several months to develop.
Again, I am no economist, but generally speaking as the euro falls (dollar rises), US interest rates go up. That could have a negative impact on equity markets as it makes bonds a more attractive investment vehicle. Money could flow out of the stock market to be reallocated to the “safer” treasury market. But heh, what do I know. You can get a better analysis of that phenomenon by watching CNBC, or for sure reading Savant’s column. In any event, the euro chart is one more reason that I continue to be a little cautious about the overall equity picture at the moment. We’ll see if that caution is warranted or not.
God bless you all,
TFG
