While many others are dissecting the tussle in Brussels for hints as to the union’s future, I thought it would be a good time to revisit the euro’s chart.
Our last forecast [June 10: Currents, See?] forecast a run up to 1.28ish by June 15, followed by a dip to 1.25 and return to 1.2875 around mid-July.
With the pair at 1.2638 after the latest “Spain is fixed” rumor, I posted:
“I suspect the euphoria over the Spanish bailout will be relatively short-lived. After all, putting the rest of the eurozone in harm’s way seems like a better way to get them downgraded than it does Spain upgraded.”
Sure enough, the ramp fell apart and the pair was trading at 1.2441 by the next day. It took the stuffing out of the next leg up, leaving it a little short of our 1.28 target at 1.2746. Likewise, the next leg down was a little deeper than expected.
As I write this, the Brussels bunch is just sitting down to cappuccino, positioning and posturing for the battle ahead. In the end, I expect the Germans will come through for their less fortunate neighbors — kicking and screaming, of course. Yes, it sucks for them. But, I don’t see that they have a choice. It’s a situation only the Borg could appreciate.
Considering the likely sturm and drang, it’ll be a sheer miracle if the markets behave as I anticipate. But, let’s take a look anyway.
continued…
The long term picture is negative. The pair has not only broken down from the big, red channel, but is heading south in the big, purple channel as well.
Prices are currently back testing a fan line that had previously offered support (the solid red line off the 2001 lows) as they head south in two intersecting downward sloping channels — the dashed red channel and a new solid purple one parallel to the previous channels.
About all that euro bulls have to look forward to is a little more of a back test of that last fan line. Otherwise, it looks all downhill from here. Having said that, fan lines can be regained. It happened many times for the EURUSD in 2010
Some miraculous “solution” might just do it. It’s unlikely to fix things, mind you. But, it could fix things long enough for the US dollar joins the euro in the outhouse — in very deep crapola. Since this is a pair we’re talking about, a loss for the dollar is a gain for the euro.
But, unless that happens, look for the EURUSD to gradually settle to the bottom of the big purple channel — in either of the two time frames signified below. And, if the euro bunch should flub the summit and not even come up with the promise — however empty — of a fix, forget about the next leg up to more closely back test the fan line. The trip to the bottom will be swift and steep.
Stay tuned.