Euro

A chat-room denizen just back from Martin Armstrong's World Economic Conference in Princeton noted that Armstrong is projecting a collapse in the euro to around 0.80 US.  This has been my target as well -- for several years -- and the chart shows one way it can be derived, using a monthly chart and some obvious Hidden Pivot coordinates. A plunge in 2016 to at least 0.9958 has already been signaled, but my hunch is that we will see yet another month or two of distribution within 2015's range before the long-term bear market resumes in earnest.

The euro's rally from the depths of Sunday night's selloff is proof that the supposedly smart money is as clueless as the rest of us about what Greek's capitulation might bring in its wake. Financially speaking, Europe is directly in harm's way, and so yesterday's rally might be likened to an even-odds bet before the All Star break that the Cubs are headed to the World Series.  A plausible explanation is that the long-expected news caught those who had bought the rumor aggressively in a short squeeze. Regardless of its cause, however, the buying spree points higher over the near term, driven as it is by two uptrends of different degree that have yet to reach their respective targets. Both are shown in the chart, with the larger of the two projecting to 1.17, the smaller to 1.15. The latter has a corresponding midpoint resistance (p) at 1.125, and if it is exceeded on a closing basis Tuesday, or by more than a penny intraday, I'd infer that 1.170 is likely to be achieved as well. ______ UPDATE (11:18 p.m. EDT): An 'inside day' added no clarity to the picture, but the euro is likely to sink if there's no follow-through by week's end to Monday's cattle-prod rally.

Europe reportedly is gearing up for record crowds this summer, hiring crowd-control experts to keep museums and landmarks from getting inundated by foreign tourists whose native currencies will buy significantly more there than in the past. For U.S. travelers, Europe hasn't been this cheap since 2003. The euro was trading for around $1.10 at the time, on its way to an all-time high of $1.60 in the spring of 2008. It's been downhill ever since, and although the currency has rebounded from a low in March of 1.05, the rally looks doomed from a technical standpoint. Notice in the chart that a key 'Hidden Pivot' support at 1.0841 was breached on the way down to the 1.0473 low. This is bearish in itself, since the support should have evinced a tradable bounce but didn't. The damage was compounded when the futures crushed a 1.0759 low from 2003 that also should have produced a bounce. Because it didn't, the decline from last May's peak near 1.40 created a bearish 'impulse leg' on the monthly chart. This implies that when this rally sputters out, the bear market will resume in earnest. It doesn't take a chartist to see that the plunge could go all the way to around 90 cents before picking up support from some lows at that level made between 2000 and 2002.

Although the Dow finished on an upswing Friday, 38 points off its shell-shocked lows, more selling seems likely. For forecasting purposes, I'd give more weight to the trendline shown than to any Hidden Pivots supports just below.  The trendline comes in at 17474, implying a further fall of 312 points beneath Friday's settlement price. We can look for ways to get short once we've seen how stocks open on Monday, so stay close to the chat room if you're interested in the trade. Bottom-fishing opportunities will be equally enticing, since a print at the trendline would imply that bulls counting on support from two lows recorded in March will have been stopped out. ______ UPDATE: The trendline noted above is still there, but yesterday's bull stampede will have distanced it for the time being as a usable benchmark.

Currencies went bonkers last week, with the euro making its steepest-ever one-day gain against the dollar on Wednesday, when it rose four cents in thee space of a few hours. By week's end, following a tailspin that gave back nearly the entire gain, the euro was bounding once again, headed for...the wild blue yonder?  I don't think so. After all, did anything in the big picture change?  The market's conniptions last week were triggered by an announcement from the Fed that merely repeated what had been said several weeks earlier -- that the central bank would no longer be so patient about raising rates. Actually, although many media outlets, including Yahoo Finance, concluded that the Fed has further opened the door to tightening, I am pretty certain that the opposite is true -- i.e., that they have reserved the right to continue waffling, for years if necessary. If so, or even if not, there has been no epiphany that might cause stocks, bonds and currencies to reverse trends that were in effect prior to the announcement. This implies that when the euro eventually settles down, it's going to head lower. This will be due in large part to a $1.2Tr stimulus by the ECB over the next 18 months, the purpose of which is to...trash the euro, but also because Europe is, and will remain, an economic basket case. The technical case can be inferred from the long-term chart (see inset). Notice that sellers recently shredded a 'Hidden Pivot support at 108.21 as well as an 'external' low at 1.0759 recorded in 2003. Taken together, these two things strongly suggest that the euro will take another leg down once a  corrective rally of undetermined magnitude has run its course. Many observers think it is a foregone conclusion that the euro

Friday's slippage beneath the 1.0489 midpoint support shown was not sufficient for us to infer that a washout to its D sibling at 1.0282 is a done deal. However, if the futures were to close beneath p today, it would shorten the odds of a follow-through to the lower number. More immediately, the June contract ended last week on a faintly bullish note with an impulse leg that pointed to 1.0518 (5-min, a=1.0488 at 4:05 p.m. EDT). The pattern would be suitable for getting long if a new, slightly lower, point C than the existing one at 1.0498 is generated. _______ UPDATE (March 17, 12:55 a.m.): The futures have taken a tentative bounce from 1.0473, exactly 0.0016 below the Hidden Pivot support noted above. Some subscribers reported getting aboard, but if you still hold a long position please let me know so that I can establish a tracking position for your further guidance.

There was quite a bit of euro-related discussion in the chat room, including Armstrong's supposed projection of a turn on March 10, so here's my take. I'd flagged a potentially important support near 105 during a recent impromptu session, but the more finely nuanced target shown, at 1.0616 is the one we should use for now. It is clear and compelling, and we should expect a tradable bounce from very close to it.  Enticing as this pivot is, if the futures overshoot it by even a small amount, that would imply more, possibly significant, weakness ahead. _______ UPDATE (11:35 a.m.): The pivot evinced no support whatsoever, implying the euro will continue  lower.

The analysis presented elsewhere on this page for the Dollar Index is very bullish, but is it corroborated by an equally bearish picture in the euro? The answer is yes, as can be inferred from the ponderous look of the long-term chart (see inset).  How far could the euro fall? In the chat room Tuesday, I broached the possibility that it could eventually go to parity with the dollar, a level not seen since 2002. Strictly speaking however, and based on the long-term chart, I can forecast no worse that 1.08. That would represent a 13% fall from current levels and a 32% decline from the all-time high of 1.60 achieved in 2008. That number is a Hidden Pivot support, and although a bounce there would be likely, there are no guarantees that the euro would not take yet another leg down. Bottom line: euro/dollar parity is possible, but even if it is not achieved the euro still has much farther to fall.

A chat-room denizen said he was looking for an 'important bottom' in the euro, but the hourly chart shown is not encouraging on that point. Notice that a downtrending ABCD pattern that took nearly a month to play out bounced almost precisely from the 1.2707 target. However, the fact that the rally was weak and lasted only a day before the futures broke to new lows is indicative of a downtrend that very likely has farther to go.  Considering how long it took for the December contract to hit the target, we might have expected the bounce to last for at least 4-6 days. The one-day reaction implies not only that sellers remain unsatiated, but that they are eager to exit despite the extremely oversold condition of the euro.  How might that affect he currency in thw weeks ahead? A trendline on the weekly chart looks more suited to projecting an important low than any Hidden Pivot support I can identify. Connecting up key lows recorded  in June 2010 and July 2012 suggests such a low could occur at around 1.2214, roughly 3.7% below current levels.