EURO Decline -- Is it over? NO! No Evidence of Bottom Yet

2014年11月7日

This chart shows EUR/USD, the Euro Currency, on a Weekly timeframe. (NOTE: Updated chart below, accidentally clicked off the Dynamic Levels that were supposed to be in the above chart)

Plotted on the chart is SCMR Trends™, which sequences price to find the correct behavior and identify good setups. It is available (along with other indicators in the package) in the TradingView Marketplace App store.

The point of this post is to state that on the larger timeframe, the Euro has provided zero evidence that it is done trending down. No -- it is not yet reversing.

This is a relevant observation because the conventional wisdom is that the price is oversold -- and yes, it certainly is -- but that currently there is no actual evidence of reversal, so to bet on a longer term reversal here and now is not the right move. We would need more data from the market that suggests a reversal is actually underway (such a Blue unconfirmed reversal or an "O" plotting under price, a confirmed reversal). This may come to pass sooner than I expect, but the important thing is that it's not happening now.

Looking in the past, the Euro was in an uptrend and provided several good signals from confirmed reversals up ("O" under price) and the Pivot bars ("P" above price). Today though, all we see is red (a downtrend).

My take is that the market can trend lower for several more weeks before a true low (which is still theoretical at this point).

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Let's look briefly at the economic and fundamental reasons for this move.

1.) EU recession. Recent data from the ECB shows that Eurozone has negative growth. The ECB is not allowed to print -- only issue bonds -- so there is a *huge* cost incentive to weaken the Euro to boost demand for these bonds, especially if they are settled in dollars.

2.) The other side of the coin is that a weaker currency can help boost foreign investment, which adds demand to a stagnating economy.

Both of these reasons, structurally and politically are why I believe the strong Dollar and weak Euro can persist longer than many expect.

RISKS:

1.) Perhaps the ECB will change its tune. I doubt this
4.) Not a recommendation to buy or sell, just an example the ways in which you can combine structural fundamental analysis with price action, which while oversold, is not yet actually indicating a reversal (even if only temporarily).