By: Christopher Lewis
The EUR/USD has continued to shop around over the last several weeks as the markets try to figure out the economic direction of the world at large. Since the EUR/USD pair is the most heavily traded financial instrument in the world, it is a proxy for economic expansion in general. (Although I would be remiss if I didn’t point out that it can diverge from time to time.) The general rule is that when this pair rises, the global economy is doing well.
The recent debt crisis in the European Union has turned this dynamic on its head a bit, but the overall correlation continues to be true. With this in mind, it doesn’t surprise me that the pair has been so choppy. After all, there are softer numbers out of China, while at the same time the US is strengthening – which over time should help the Chinese economy. The European issues continue, and with the Dutch suddenly coming to the forefront as their government fails, there are plenty of things to go back and forth about. In the mean time, we are left with a mess.
Triangle, and the Fed.
The recent action in this pair suggests that perhaps we are trying to form a large descending triangle. The highs are getting lower, and the bottom is obvious at the 1.30 level. Of course, there are a lot of things that could change this before a total breakdown, but it is a good thing to keep in the back of your mind. This only lends credence to my theory of weakness going forward, but then again – we cannot call it a true confirmed triangle until we close below the 1.30 level.
The 200 day exponential moving average is just above the triangle, so this leads me to believe that the pair will struggle to break above the top of the potential triangle, and I am willing to sell on signs of weakness at that area. (Roughly the 1.33 handle.) Either way, I am not buying the Euro – far too many problems at this point in time.
.png "EUR/USD Daily 42512")
The Federal Reserve will conclude its meeting today, and the announcement and new conference afterwards will more than likely move this market as well. If there is any sign of QE – this pair will more than likely test that triangle top. If not, we could see a sell off. Either way, I am using the above mentioned levels as a guide to trading this pair.