Great Graphic: Potential Topping Pattern for Euro

The euro appears to be potentially carving out
a topping pattern. 
Recall that after correcting lower last September
and October, the euro rallied for three months through January before weakening
1.75% in February.  That was its biggest decline since February
2017.  

The euro’s high print was actually on February
16 near $1.2555, when it posted a key reversal, which is when it makes a new
high for the move and then closes below the previous day’s low.
  The
euro was sold to $1.2155 on March 1.  It posted an outside up day on March
1 and recovered smartly through today’s high (~$1.2445) a tick or two above
yesterday’s high.  It has reversed lower again, perhaps encouraged by the
realization that the small trimming of next year’s inflation was a dovish
signal.  

To bolster confidence that a high of some
importance is in place, it is important that the low from late January
(~$1.2165) and the low from March 1 ($1.2155) is convincingly violated. 

That appears to be the neck line of a potential head and shoulders top. 
It is also roughly the 38.2% retracement of the euro’s rally since the start of
last November. 

 If the head and shoulders pattern is
valid, it would project toward $1.1750.
  There is much wood to chop
before getting there.  The $1.2055 area corresponds to a 50% retracement
and the $1.1940 is the 61.8% retracement of the rally that began last
November.   

The technical indicators are sympathetic to
this view. 
The RSI has been trending lower since late January and did
not confirm the marginal new high the euro recorded in mid-February.  The
MACD also showed this bearish divergence.  The recent bounce saw the MACED
turn higher, but its rolling over again.  The Slow Stochastic is turned
up, but the Fast Stochastic has turned lower.  The technical indicators of
the weekly bar charts are also favor the downside.  

Speculators in the futures market have a
near-record net long euro position.
  The record was set at the end of
January near 149k contracts.  As of last week, they were still net long
138k contracts.   The gross longs peaked a bit earlier in January
near 262k contracts.  As of last week, there was still a 238.3k net long
speculative position.  The gross shorts are substantial, but around 100k
contracts, it is half the size as it was prior to the French elections last
April.  

Separately, we note the Dollar Index may be
forging a bottom, though the pattern is not as clear as the euro. 
The
Dollar Index stalled near the 50% retracement of this month’s losses at near
90.15.  The 61.8% retracement is near 90.35, and this needs to be taken
out to bolster confidence that a low has been recorded.  However, the
91.00 are may be formidable.  

Similarly, the dollar appears to have also
carved out a head and shoulders bottom against the Swiss franc. 
The
dollar has reached its best levels since January 24 today.   The neckline
is seen near CHF0.9500, which is also approximately the 38.2% retracement of
the decline since last November.   If convincingly violated projects
toward CHF0.9800, which is beyond the 50% retracement (~CHF0.9610) and the 61.8%
retracement (~CHF0.9715).  

Disclaimer

Share this post

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on pinterest
Share on print
Share on email