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 will trade at parity with the dollar, but my worst case calls for a test of lows near 83 cents not seen since 2001. ______ UPDATE (March 23, 9:35 p.m. EDT): Monday’s moderate rally has brought a 1.1163 Hidden Pivot target into sharp focus (240-minute, a=1.0473 on 3/13) , so we’ll use it as a minimum upside target for the near term. I am confident it will be reached, but the futures will need to push easily past it to suggest they’re capable of extending what still looks like a dead-cat bounce. Traders can use a mechanical bid at 1.0894, stop 1.0805, for the approach. _______ UPDATE (March 27, 12:05 a.m.): With the pullback to p=1.0894, traders can attempt a mechanical buy there, stop 1.0800. ______ MARCH 29, 4:46 p.m.): The tracking position survived Friday’s swoon, which went no lower than 1.0812. Keep the stop in place as we shoot for a second-wind push to the original target, 1.1163. _______ UPDATE (March 31, 11:37 p.m.): The futures dove anew, ending our ride — or perhaps not, since I didn’t hear from any subscribers who did the trade.